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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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%).
- 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.
- 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.
- 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.
- 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.
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.
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.
- 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).
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.
- 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.
- 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?
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.
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.
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.
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.