We read about wildly successful startups and unicorns all the time. As of 2021, there were around 600 unicorns.
But while launching a successful startup seems deceptively easy, that’s really not the case, especially nowadays.
The thing is:
In 1994, US startups created a massive 4.1 million jobs. Fast forward to 2020, and that number stood at 3.1 million.
These figures beg the question:
What percentage of startups fail?
So, we’ve collected all the latest facts and statistics to provide you with a comprehensive answer.
But before digging deep into every interesting stat, let’s have a look at some important figures first.
Most Fascinating Startup Failure Rates in 2022
- 90% of new startups fail.
- 75% of venture-backed startups fail.
- Under 50% of businesses make it to their fifth year.
- 33% of startups make it to the 10-year mark.
- Only 40% of startups actually turn a profit.
- 82% of businesses that fail do so because of cash flow problems.
- The highest failure rate occurs in the information industry (63%).
And now that I’ve whetted your appetite, let’s explore the most important new trends.
What does the global startup scene look like?
Here are the key recent developments that help explain what percentage of startups fail in 2022 and beyond.
What Percent of Startups Fail?
Let’s get the raw numbers on startup failures, profits, and timing.
1. An Estimated 90% of New Startups Fail.
(Source: Failory)
- How many startups fail in the first year? Around 20%.
- 20% of startups close within their first two years.
- Under 50% of businesses make it to their fifth year.
- Around 30% of businesses make it to the 15-year mark.
What percentage of startups become successful? Only 1 in 10 survive in the long run.
To make matters even worse:
The failure rate progressively increases over time. You might think you’re in the clear if your small business has been around for a couple of years, but the Bureau of Labor Statistics (BLS) shows that’s not the case.
2. Only 40% of Startups Actually Turn a Profit.
(Source: Zippia)
- 30% of startups break even.
- Startups with two founders are 19% less likely to scale prematurely than startups with a single founder.
- Startups with two founders have nearly 3X the user growth of startups with a single founder.
Crippling cash flow issues also affect a startup’s profitability. As a result, over half of all startups operate at a loss.
But there’s a light at the end of the tunnel:
Having a co-founder will significantly increase your chances of success.
If finding a co-founder is not an option for you, you can also try crowdfunding.
3. What Percent of Startup Companies Fail in Europe? 50% Go Bust Within the First Three Years.
(Source: igostartup)
- 82% of first-time European entrepreneurs fail.
- In 2021, Europe is positioned as a strong global tech player, with a record of $100 billion of capital invested and 98 new unicorns.
- At its fastest pace, European tech is creating value, adding $1 trillion in 8 months.
- In the last decade, venture capital funding in Europe grew six times, to almost $24 bn in 2020 compared to $34.3bn in 2019. However, compared to $73.6bn the US ecosystem raised in 2020, is still short, but it’s a big jump and almost 1.5x the rate of growth than the USA.
In case you were wondering:
“Is the European startup scene better than the US?”, you now have your answer.
Why Do Most Startups Fail?
Let’s go over the roots of the failure: cash flow, marketing, or collaboration?
4. No Market Need Is the Number One Reason Why Startups Fail.
(Source: Failory)
- Marketing is another major reason for failure.
- Team problems are a contributing factor to startup failure.
- Little experience of CEOs and Directors is also a common characteristic of failed startups.
Most failed startups tend to have several things in common:
First, insufficient competence can result in emotional pricing and a lack of planning.
Second, inexperienced founders often buy the wrong inventory or make bad decisions.
Third, poor advice from friends and family, in addition to family commitments, piles on the considerable pressure of running your own company and impacts what percentage of business startups fail.
But what factors lead to success?
5. 82% of Businesses That Fail Do So Because of Cash Flow Problems.
(Source: Fundera)
- 79% of businesses that fail start out with too little money.
- 77% of businesses do not have appropriate product and/or service prices.
- 73% of businesses have overly optimistic sales estimates.
Most startups fail due to money-related issues. Sound financial planning is absolutely crucial when running a business, and that includes business credit cards with the lowest interest rates and best rewards.
However, many entrepreneurs underestimate the potential difficulties. The volume and timing of sales are particularly difficult to project, which can cause significant cash flow problems down the road.
6. Most of the Startups That Fail in Latin America Do So At the Initial Stage.
(Source: PanamericaWorld)
- Around 75% of startups in Latin America fail after two years of activity.
- The majority of failed Colombian startup businesses were in the services sector, with a share of 74.4%.
- As of 2017, 68.3% of failed Mexican startups could not find governmental programs.
- Meanwhile, 18% of Mexican entrepreneurs did not have any intention to launch a startup after experiencing failure.
As bright as Latin American startups’ prospects are, it’s not all smooth sailing, as the high percentage of startups that fail at the first hurdle demonstrates. The possibility of failure is all too real, especially early on.
What’s worse:
Strapped for cash as they are, some national governments across the region are unable to offer adequate assistance and infrastructure.
Still, a majority of Latin American residents believe starting their own business is a good career choice.
Startup Failure Rate by Industry
What industries startups can’t make it past the startup threshold?
7. The Highest Startup Failure Rate Occurs in the Information Industry (63%).
(Source: Failory)
- Construction has the second-highest failure rate of any industry, with 53%.
- Manufacturing comes third, with 51%.
- Mining has the fourth-highest failure rate, with 49%.
- The finance, insurance, and real estate industry has a success rate of 42%. Additionally, check the talent of the top real estate lead generation companies.
Failure rates vary significantly across various industries. Plumbing, construction, and local trucking have the lowest success rate of startups. The mining and manufacturing industries are especially challenging, as is, perhaps somewhat surprisingly, the information industry.
Here’s the key takeaway:
The finance insurance industry offers the best chance to launch a successful startup.
Startup Success Rates & Growth
What are the important factors for a startup success story?
8. 2020 Had The Most Startup Searches of Any Year.
(Source: Micro Biz Mag)
- In a survey of 1,000 adults in the U.K, in January 2020, 65% of them wanted to start their own business
- The other 35% were split between those who did not want to start their own business (21%) and those who were unsure (14%)
- Considering what percentage of startups fail, those who are reluctant to start a company may be right not to start one.
In January 2020, the number of searches for ‘how to start a business’ went up. According to startup finance statistics presented, it is the highest search volume since records started in 2004, in the United Kingdom.
The number of searches made per month is 18,100, according to Micro Biz Mag.
9. There Could Be More Unicorns In Years To Come.
(Source: Statista)
- Aileen Lee, a former Kleiner Perkins partner, coined the term unicorn to mean successful startups that reached a valuation of more than $1 billion.
- Thirty-nine companies could be called unicorns in 2013 when he came up with that title.
- In 2020, there are about 475 active unicorns in the world.
- As of March 2022, there are 1.000 unicorns worldwide.
It takes a startup about six years to achieve the title of ‘unicorn.’ That is a significant startup success rate compared to 2015 when it would take seven and a half years.
Looking at the startup success rate in the United States, we see a 353.1% increase compared to the rate in 2013. The number is easy to explain, seeing as venture capitalism, initiatives, and technology, have all improved since then, creating some of the most successful startups.
With all these improvements, more and more people feel like they can avoid being another number in the startup failure rate statistics, and therefore, more people try.
10. There Are Over 32 Decacorns in the World.
(Source: ExplodingTopics)
- Decacorns are unicorns with valuations of $10 billion and above, making them some of the most successful startups.
- As of 2021, Bytedance is the most valuable unicorn in the world, with a valuation of $140 billion.
- At number 2 and 3, we have Space X with $100.3 billion and Stripe with a valuation of $95 billion.
Bytedance is the Beijing-based parent company behind TikTok. They are a news and information platform. Stripe develops processing software for online payment.
Space X needs no introduction.
If anyone is going to Mars, it’s those guys that will be taking us there.
11. The Birth of Hectocorns
(Source: CB Insights)
- At a valuation of $140 billion, Bytedance is one of the only two known hectocorns
- A hectocorn refers to a unicorn company with a valuation that exceeds $100 billion, also known as “Super Unicorn”.
- The other hectocorn is SpaceX, with a valuation of $100.3 billion as of 2022.
The secret behind Bytedance is that they engineer apps, specifically to make them go viral. For example, their most successful app is TikTok. It has been downloaded more than 3 Billion times.
12. A Good Understanding of the Market Is a Key Factor Behind Startup Success.
(Source: Failory)
- Persistence is another common characteristic of successful startups.
- Successful startups anticipate competitors’ plans and stand out from the crowd.
- Successful startups also employ experienced mentors.
You might think you’ve come up with the most amazing product in the world, but if nobody wants to buy it, you’re left in the lurch.
Here’s the thing:
A sound understanding of the market and your target audience is indispensable.
And if you’re not sure about all the ins-and-outs of your chosen niche, you should hire a seasoned professional to help guide your new venture.
You should also pay special attention to the peculiarity of each region’s startup scene.
13. In 2021, around 5.4 Million Applications Were Filed to Form New Businesses.
(Source: EIG)
North Americans are famous for their entrepreneurial spirit and can-do attitude. So, how does that affect what percentage of startups fail in the region?
- In 2021, the value of the global venture capital investment market was $211.3 billion.
- In 2021, the early-stage funding in global startups notched $201 billion.
- What percentage of startups that get funding to fail? 75% of venture-backed startups.
What percentage of American startups fail? While the vast majority go under, successful ones have enjoyed robust growth. Venture capital investment has also grown in recent years.
However:
It still amounts to a tiny percent of overall startup funding, especially during the crucial launch phase. The main problem, though, is that three-quarters of venture-backed startups go bust.
14. With 71.133 Startups, the USA Is the Leading Country By the Number of Startups.
(Source: FirstGuide)
- India comes in second place, with 13.096 startups.
- The UK takes third place, with 6.219 startups.
- Next on the list is Canada, with 3.221 startups.
In other words, the USA has nearly 3 times more startups compared to these countries combined: India (13.096), the UK (6.219), Canada (3221), Indonesia (2328), Germany (2290), Australia (2.214), France (1.562), Spain (1.399), and Brazil (1.164).
Startup Trends
Let’s look into the future of startups!
15. In 2021, European Startups Recorded $121 Billion in Funding, Which is Nearly 3 Times the $41 Billion of Capital Raised in 2020.
(Source: Entrepreneur)
- In 2021, the total equity value of European tech startups in the private and public markets reached over $3 trillion for the first time.
- Currently, there are 321 unicorn companies in Europe, of which 98 were created in 2021.
- Also, there are 26 decacorns, worth over $10 billion.
In 2021, Europe also recorded many mergers, acquisitions, and initial public offerings.
16. San Francisco Is the Best City in the World for Startups in 2022.
(Source: JumpstartMag)
- San Francisco Bay has approximately 40.000 startups and is worth $1.029 trillion.
- The second on the list is New York with a startup ecosystem value of $189 billion. It is best known for its cybersecurity, AI/data analytics, and life sciences-based ventures.
- Beijing takes 3rd place on this list, with a startup ecosystem value of $445 billion. The core strengths of Beijing are data analytics, AI, and FinTec.
These three cities offer particularly fertile ground for startups. However, these aren’t the only ones suitable for startups. In the last few years, the startup scene has flourished in Los Angeles, Boston, Tel Aviv, and London as well
Startup Finance Statistics
Last but not least, let’s find out what are the latest finance statistics in the startup world.
17. One-third of Startups in the US Launch With Less Than $5,000.
(Source: Small Business Trends)
- 58% of US startups start with less than $25,000.
- Almost 70% of US entrepreneurs launch startups from home.
- 71% of US startup owners are White/Caucasian.
- 73% are male.
- 57% are aged 50 and over.
Can we create a profile of the typical US startup owner?
You bet:
A middle-aged, middle-class, white male working from home.
Contrary to what Hollywood will have you believe, your average startup owner doesn’t resemble Mark Zuckerberg.
Here’s the deal:
Experience counts. It also leads to a lower entrepreneur failure rate.
18. Around 80% of Indians Believe That There Are Good Opportunities to Start a Business in Their Area.
(Source: News18)
India is one of the fastest-growing economies in the world. It is projected to average astonishing annual GDP growth of 7.7% between 2021 and 2024. So, let’s see how the red-hot economy affects startups on the sub-continent.
- In 2021, Indian startups have raised $42 billion.
- 44 new unicorns were identified in India in 2021.
- India has 83 unicorns, as of January 2022, with a total valuation of $277.77 billion.
- Maharashtra has the highest number of startups, with a total of 11,308 startups.
In 2021, India overtook the UK and emerged as the 3rd highest country in the number of unicorn companies.
Conclusion
We began this exploration of startup failure rates around the world with some pretty depressing statistics.
There’s no point in sugar-coating it:
Yes, the vast majority of startups fail.
Yes, three-quarters of venture-backed startups fail.
Yes, less than half of startups turn a profit.
Yes, yes, yes…
But that’s not the whole truth:
The entrepreneurial spirit remains very much alive and kicking not only in its traditional North American and Western European heartlands but in developing economies in Latin America and India as well.
In fact:
Latin America and India are among the most entrepreneurial regions globally!
And now that you know what percentage of startups fail and why you too can feel at least a bit more positive about setting out on an exciting quest for your very own billion-dollar unicorn.
After all, the journey is half the fun. I’ll see you there.
FAQs
Is it true that 90% of startups fail? ›
The reality is that 90% of startups fail. From budgeting apps to legal matchmaking services, businesses across every industry see more closures than billion-dollar success stories. And a whopping 10% of startups fail before they reach their second year.
What percentage of startups fail within 5 years? ›According to the U.S. Bureau of Labor Statistics (BLS), this isn't necessarily true. Data from the BLS shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years.
What percentage of venture backed startups fail? ›The common rule of thumb is that of 10 start-ups, only three or four fail completely. Another three or four return the original investment, and one or two produce substantial returns. The National Venture Capital Association estimates that 25% to 30% of venture-backed businesses fail.
Why do 95% of 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.
Do 95% of businesses fail? ›According to the U.S. Small Business Administration, over 50% of small businesses fail in the first year and 95% fail within the first five years.
What is the #1 mistake startups can make? ›You only follow your gut; you don't listen to your customers. Most entrepreneurs start companies with an idea for a product that they think people will want. That right there is where they fail. In fact, 42% of startups fail because they didn't solve a market need.
What is the success rate for startups? ›What's The Startup Success Rate? As we have seen, 90% of startups fail, which means the startup success rate is around 10%. This rate is much higher if we also consider other more traditional businesses and not only innovative tech startups.
Why 85% of businesses are failing during the first years list four reasons? ›Other reasons why businesses fail in their early years include: poor business location, poor customer service, unqualified/untrained employees, fraud, lack of a proper business plan, and failure to seek outside professional advice.
Are 92 of the startups successful within the first 3 years of starting? ›What is Entrepreneurship? – In a study of about 3200 startups in the silicon valley, about 92% of startups failed within the first 3 years of starting.
Why do 99 percent of startups fail? ›Wrong Timing- Sometimes the product you bring in the market could be ahead of it and the consumer is not ready for it. In the second case, the product can be a 'Copy Cat' version of other products already in the market. Both these cases are reasons why most start-ups fail.
What percent of new businesses fail in the first 3 years? ›
20% don't make it past their first year, and a staggering 60% go bust within their first three years.
Why do more than 90% of the startups fail globally? ›A report by IBM Institute for Business Value and Oxford Economics found that 90 percent Indian startups fail within the first five years, lack of innovation being the main reason, News18 reported.
What are the statistics on small business failure? ›According to statistics: 22% of business startups fail in the first year. 50% of new businesses fail within the first five years.
What percentage of new businesses fail in the first year? ›The business failure rate in the U.S. within the first year is nearly 20% — 18.4%, to be exact — according to a LendingTree analysis of BLS data.
Why only 1 percent succeed? ›The 1 percent know people like to buy the best products and services possible. So they make it their goal to be the best and produce the best. You are going to have a hard time producing the best products and services if you, personally, are not the best. So if you're not the best, don't focus so much on your work.
What is the average lifespan of a startup? ›The average startup lasts between two and five years.
On average, 90% of startups survive one year. 69% of small businesses survive two years. However, only 50% of startups will survive five years.
The most common reasons small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.
What businesses have the highest failure rate? ›- Arts, entertainment and recreation: 11.6 percent.
- Real estate, rental and leasing: 12 percent.
- Food service industry (including restaurants): 15 percent.
- Finance and insurance: 16.4 percent.
- Professional, scientific and technical services: 19.4 percent.
99% of people who venture into entrepreneurship inevitably fail within their first 5 years. Although there are new technological advancements every day, breeding new waves of opportunity, these statistics never seems to decrease.
What are the top 5 reasons businesses fail? ›- Poor cash flow management. ...
- Losing control of the finances. ...
- Bad planning and a lack of strategy. ...
- Weak leadership. ...
- Overdependence on a few big customers.
What are 4 mistakes startups typically make? ›
A. Undervaluing their products or services, hiring wrong staff, expanding the business too quickly, creating an inefficient marketing plan, overpromising and underestimating business opportunities are some of the major mistakes a startup can make.
What is the biggest challenge for a startup? ›- 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. ...
- Lack of demand. ...
- Ineffective marketing. ...
- Knowledge and skills gaps. ...
- Financial management. ...
- Securing funding. ...
- Hiring the right people. ...
- Leadership.
- Neglecting to make a business plan. ...
- Inadequate financial preparation and resources. ...
- Failing to monitor progress and adjust. ...
- Buying assets with your cash flow. ...
- Avoiding outside help. ...
- Setting the wrong price. ...
- Ignoring technology. ...
- Neglecting online marketing.
Startup Failure Statistics
42% of startup businesses fail because there's no market need for their services or products. 29% failed because they ran out of cash. 23% failed because they didn't have the right team running the business. 19% were outcompeted.
What percentage of startups fail after Series A? If a startup makes it to Series A, about 35% will fail before raising a Series B round. For the 65% of Series A startups that are able to raise capital, this stage typically brings in between $500,000 and $3 million within a period of 12 to 18 months.
Are startups declining? ›Hiring by Indian start-ups declined by 44% during the last quarter of 2022 as compared to the first quarter that year, said human resources consultancy company CIEL HR Services. According to a study by the company, hirings among Indian start-ups had been on a steady decline.
What are the 9 reasons businesses fail? ›- Not having an effective business plan. ...
- Not putting the customer first. ...
- Not hiring the right people. ...
- Lack of flexibility. ...
- Lack of innovation. ...
- Not understanding your industry. ...
- The wrong mindset. ...
- Ineffective marketing strategies.
The fast answer for what percentage of small businesses fail, according to data from the Bureau of Labor Statistics: about 20% fail in their first year, and about 50% of small businesses fail in their fifth year. But it's also helpful to see this statistic in terms of how many American small businesses survive.
Are 90% of the startups are successful within the first three years of starting? ›With the Startup Genome Report citing that within three years, 92% of startups fail, maybe there's something to learn before jumping into your own company.
What is the highest percentage age group of startups? ›The correct answer is Option B) the highest percentage of entrepreneurs falls in the 30 to 39 age range.
What percent of unicorns fail? ›
...
| Business Type | Failure Rate | Time Frame |
|---|---|---|
| Startup | 90% | 10 years |
| Scaleup | 75% | 10 years |
| Unicorn | 99.9% | 10 years |
Premature scaling is a common problem, with some analysts claiming that it accounts for 70% of startup failures. Companies scale too quickly when they bring on new people, spend money, and try to acquire more customers before they've really nailed down the product and business model.
What percentage should a startup be? ›As a rule, the share percentage of independent startup advisors is around 5% (or no equity at all). Investors claim 20-30% of startup shares, while the founder and co-founder share percentage is over 60% in total. You may also leave some available pool (say 5%), but don't forget to allocate 10% to employees.
How many new businesses fail within 18 months of getting started? ›We can also conclude that about 65% of new businesses don't make it to the ten-year mark. Forbes reports an even more grim statistic, based on Bloomberg research, that of every 10 businesses, eight fail within the first 18 months.
What percentage of businesses fail in the 3rd generation? ›Second generation businesses have a 60 percent failure rate, while third generation businesses fail at a rate of 90 percent.
How much do companies lose in the first year? ›Most businesses don't make any profit in their first year of business, according to Forbes. In fact, most new businesses need 18 to 24 months to reach profitability. And then there's the reality that 25 percent of new businesses fail in their first year, according to the Small Business Administration.
What is the fail rate of startups? ›Whether it's bad luck, bad timing or a half-baked business model, there are any number of ways a startup can go wrong. And roughly 20% of new businesses fail within their first year, according to data from the U.S. Bureau of Labor Statistics.
What is the fail ratio of startups? ›Startup Failure Rates
About 90% of startups fail. 10% of startups fail within the first year. Across all industries, startup failure rates seem to be close to the same. Failure is most common for startups during years two through five, with 70% falling into this category.
According to the U.S. Bureau of Labor Statistics (BLS), this isn't necessarily true. Data from the BLS shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years.
Do 90% of all businesses experience a lawsuit at some point in their lifespan? ›90% of all businesses experience a lawsuit at some point in their lifespan. There are around 12 million contract lawsuits filed every year against small businesses. The average liability suit costs at least $54,000.
What are the top 10 reasons small businesses fail? ›
- 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.
What's The Startup Success Rate? As we have seen, 90% of startups fail, which means the startup success rate is around 10%. This rate is much higher if we also consider other more traditional businesses and not only innovative tech startups.
What is the failure rate of small businesses by year? ›According to data from the Bureau of Labor Statistics, as reported by Fundera, approximately 20 percent of small businesses fail within the first year. By the end of the second year, 30 percent of businesses will have failed.
What is the failure rate of online business? ›Approximately 80%-90% of them fail, meaning the e-commerce success rate is less than 20%. If you're starting your own online business or already run one, that might send a shiver down your spine. But fear not! While you can learn a lot from a successful business, you can learn a lot more from failures.
What is the #1 reason that most new businesses fail? ›1. Poor management. We've finally reached the #1 reason why a new business might fail. Entrepreneurs have power over their businesses, and with great power comes great responsibility.
Which is one of the top reasons that a startup fails? ›- Reason 1: Market Problems. ...
- Reason 2: Failure to find Product/Market Fit. ...
- Reason 3: Failure to find a Repeatable and Scalable Sales Motion. ...
- Reason 4: Failure to find a profitable Growth Model. ...
- Reason 5: Poor Management Team. ...
- Reason 6: Running out of Cash.
The average startup lasts between two and five years.
On average, 90% of startups survive one year. 69% of small businesses survive two years. However, only 50% of startups will survive five years.
...
Table of Contents:
- You work in a toxic culture.
- You've stopped learning.
- You feel undervalued.
- You feel burnt out.
- Your company isn't financially stable.
- You're easily bored by your work.
- You want to work in a different startup stage.
While it's not impossible, attaining unicorn status can be incredibly difficult. In fact, a business only has a 0.00006% chance of becoming a unicorn, and it takes an average of seven years for nascent startups to grow into unicorns.
How much money does someone in the 1% have? ›According to the Economic Policy Institute, the average annual wage of the top 1% was $823,763 as of 2020.1 A more recent study by SmartAsset points out that the national average of the top 1% earners is $597,815.2 Have in mind that the figures vary greatly from state to state.
What 99% of people don't do? ›
99% of people will procrastinate and put things off that aren't fun. The 1% understand that achieving a goal means working beyond a feeling or through things you don't enjoy. It requires pushing through some things that aren't necessarily fun but are necessary to achieve the desired goal.
Who controls most of the money in the world? ›half of the world's net wealth belongs to the top 1%, top 10% of adults hold 85%, while the bottom 90% hold the remaining 15% of the world's total wealth, top 30% of adults hold 97% of the total wealth.