Why Venture-backed Companies Fail (2024)

In 2022, over half a trillion venture capital dollars were invested in companies around the globe. The US is where a majority of those companies were located, with $241 billion going to US-based companies.

Amazingly, this is actually a decrease from the peak of the recent VC gold rush in 2020 and 2021 — and there’s still a strong tailwind propelling money into companies at all stages. This appetite of investors will never go away. It may ebb and flow, but it will always be there as a strong demand. There will always be money to be raised.

And yet, despite all that cash flowing into VC-backed companies, twenty-five to thirty percent of them will fail. One in five fail by the end of their first year; only thirty percent will survive more than ten years.

Startup Failure Rates

Any founder will immediately speak to the stress involved in running a VC-backed company, no matter if it’s pre-seed or in Series D — they’re putting everything they have into making the business work. But at the end of the day, about a third of them won’t succeed. Seems like a bleak picture, doesn’t it?

Here’s the silver lining: if you can make it to a Series C, your chances of failure plummet. Pre-seed failure rates are around sixty percent; Series B failures are about thirty-five percent; but make it to Series C, and the failure rate goes to one percent. That’s right. One. You’re ninety-nine percent likely to make it if you can survive to that point.

There are a lot of reasons companies fail. They get mismanaged, they get out-competed, they can’t make the margins work — those are some common reasons. And if you’re a founder, you’re probably thinking about avoiding those every single day.

But what are the reasons companies succeed?

Is there a pattern that can be found, a secret sauce that separates the winners from the losers? Is there a blueprint that could show you the exact playbook that led one company to a high-dollar exit, and the next company to crash and burn?

After twenty years of working with companies at all stages, I can tell you that the answer to that is yes.

Team Building to Win

It’s probably not what you think. It’s not a particular operating system, funding amount, or even the mix of characteristics of the CEO Founder. Those things obviously matter, but they’re not the secret sauce.

The difference between companies that succeed and companies that fail is their teams. Not the exact people on the team, although that’s a piece of it. Not the work the teams are doing, although obviously that makes a difference, too.

Winning teams are differentiated by how they work, together and individually. How does the team operate on a daily basis? What is their culture? What are their core behaviors?

Peak Team Behaviors

You can always spot an unstoppable team by their behaviors. In the hundreds of VC-backed teams I’ve coached, I’ve seen a specific set of behaviors that always indicates a winning team — and without these behaviors, your team is likely to fall behind or get stuck.

Alignment: Getting everyone on the same page about Why, Where, When, What, How, and most importantly, Who. Everyone needs to be moving in the same direction, or functionally, you’re standing still.

Symbiosis: Creating an environment of trust, respect, and unity. Without symbiosis, you’ll notice silos forming and team members working independently from each other — sometimes even at odds without realizing it.

Communication: What brings teams together and keeps them together. Poor communication absolutely kills morale and motivation, and along with them, your company’s goals.

Empowerment: Successful teams empower their members, providing autonomy and support for decision-making and ownership of work. When people have autonomy, they are more engaged, more creative, and more productive.

Learning: A team that learns from itself is a team that constantly moves forward. We’ll build the learning habit on both the individual and team levels.

In my twenty years of working with VC-backed companies at all stages — from pre-seed to exit — I’ve seen that these five behaviors are the difference between success and failure. Without these five behaviors deeply ingrained and constantly reinforced, results won’t happen.

There are a lot of important team behaviors to build, but these are the five dealbreakers your team needs to build and master in order to win.

More on Why Venture-backed Companies Fail, read my book "Peak Teams" here >>> https://geni.us/peak-teams

Why Venture-backed Companies Fail (2024)


Why Venture-backed Companies Fail? ›

They get mismanaged, they get out-competed, they can't make the margins work — those are some common reasons. And if you're a founder, you're probably thinking about avoiding those every single day.

Why do 90% of startups fail? ›

Top Reasons Startups Fail

The relatively high startup failure rates are due to various reasons, with the most significant being the absence of a product-market fit, poor marketing strategy formulation and implementation, and cash flow problems.

What's the #1 reason most startups fail? ›

According to business owners, reasons for failure include money running out, being in the wrong market, a lack of research, bad partnerships, ineffective marketing, and not being an expert in the industry. Ways to avoid failing include setting goals, accurate research, loving the work, and not quitting.

What percentage of venture backed startups fail 25% 50% 60% 75%? ›

25-30% of VC-backed startups still fail

As a general rule of thumb for startups, out of every 10, about three or four fail completely. The other three or four return their original VC investments, and only one or two will produce substantial returns.

Why do most ventures fail? ›

Founders often run out of capital, struggle to generate revenue, spend on the wrong things, and/or fail to attract investors. Businesses are well-equipped to solve big problems because they are supposed to be self-sustaining.

Why do businesses venture fail? ›

According to sources, there are six common reasons why small businesses fail: a lack of proper planning, insufficient funding, ineffective marketing, poor management, failure to adapt to market changes, and legal issues.

What are the top 10 reasons why businesses fail? ›

And once you identify these harbingers of failure, you can increase your own chance of success.
  • Procrastination. ...
  • Inadequate knowledge of regulations. ...
  • Ignoring the competition. ...
  • Ineffective marketing and ignoring customers' needs. ...
  • Incompetent employees and management. ...
  • Lack of versatility. ...
  • Poor location. ...
  • Cash flow problems.

Why do 95% of businesses fail? ›

The causes of failure are numerous, from a faulty business model and poor product-market fit to running out of cash or a lack of passion and perseverance. However, one of the most critical and overlooked reasons startups fail comes down to poor hiring and talent acquisition practices.

Why only 1 percent succeed? ›

All jokes aside, there is a very good reason for this. If everyone was a success, no one would be. What makes a person successful is how we compare them to others. If everyone was considered successful then we wouldn't have any failures to compare them to and therefore no one would be successful.

What are 4 mistakes startups typically make? ›

Here are the top ten most common startup mistakes – and how to avoid them.
  • Spending money on the wrong things. ...
  • Rushing through the hiring and onboarding process. ...
  • Acting without planning. ...
  • Operating without a style guide or brand persona. ...
  • Being afraid to test and learn. ...
  • Partnering with the wrong investors.
Jun 19, 2023

What is the #1 mistake startups can make? ›

Burning Through Money Too Quickly

One of the biggest startup mistakes is poor cash flow management. About 82% of unsuccessful startups fail because they fail to properly manage their cash flow, or how much money is coming in and out of the business.

Is it true that 90% of startups fail? ›

Nine out of ten startups will fail. This is a hard and bleak truth, but one that you'd do well to meditate on. Entrepreneurs may even want to write their failure post-mortem before they launch their business.

How many VC backed companies fail? ›

And yet, despite all that cash flowing into VC-backed companies, twenty-five to thirty percent of them will fail. One in five fail by the end of their first year; only thirty percent will survive more than ten years.

What happens to VC money if startup fails? ›

The Consequences of a VC Backed Startup Failure

For starters, VCs may lose the money they invested in the failed startup, as well as any fees that were associated with the investment.

What is the success rate of venture backed startups? ›

Most venture-backed startups, however, never reach either of these paths, or if they do it is in a state of distress. Approximately 75% of venture-backed startups fail – the number is difficult to measure, however, and by some estimates it is far greater.

What are the three 3 reaction an entrepreneur can learn from business failure? ›

Entrepreneurs who learn the lessons of resiliency, fearlessness, and adaptability from failure in business are able to conquer obstacles and setbacks to achieve success.

Why do new ventures fail in entrepreneurship? ›

Because of limited resources, high levels of uncertainty and inexperienced management and employees, new ventures suffer from a very high rate of mortality- much higher than that of larger, well-established firms. There are a number of reasons for failure of a new venture, which are discussed below.

What is the biggest challenge in starting a new venture? ›

10 biggest start-up challenges
  1. Failure to plan. CHALLENGE: With the excitement of a new business idea, it can be tempting to launch without much forward-thinking opens in new window. ...
  2. Lack of demand. ...
  3. Ineffective marketing. ...
  4. Knowledge and skills gaps. ...
  5. Financial management. ...
  6. Securing funding. ...
  7. Hiring the right people. ...
  8. Leadership.

What are the risks of new ventures? ›

Entrepreneurs face multiple risks such as bankruptcy, financial risk, competitive risks, environmental risks, reputational risks, and political and economic risks. Entrepreneurs must plan wisely in terms of budgeting and show investors that they are considering risks by creating a realistic business plan.


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