Start-up Entrepreneurs' Blog

Statistically Speaking … The Hidden Side of Start-Ups

February 24, 2011

What are the odds of a start-up becoming the next Google or Amazon? We’ve all heard that it’s slim, but what are the actual chances of reaching such great heights? Everyone talks about the winners, but what about the failures. Here are the statistics on the odds of a start-up’s success.

Informally, venture capitalists and angels say they fund around one percent of proposals.

In 2009, 57,225 U.S. companies received $17.6 billion from 359,480 individuals, according to the University of New Hampshire data. On average, each investor provided $50,000 to each start-up and each start-up received a total of $300,000 from individuals. By comparison, only 728 companies, about 13 percent as many, raised money from venture capitalist firms in the same year, according to the National Venture Capital Association.

According to PWC research, venture capitalists funded 30,000 start-ups in the past 10 years. To put that into perspective, there are only 15,000 companies listed on the US public exchanges.

Data compiled by Finance Professor Jay Ritter at University of Florida, in the past ten years, there were 561 technology IPOs and  568 venture-backed IPOs.  Only 38% of all IPOs were ventured-backed during the same period.

If 568 of 30,000 venture-backed start-ups went IPO, that’s less than 2% became publicly traded companies. Just because a start-up goes IPO, doesn’t mean it survives the test of time. On the list of tech IPOs in those 10 years are: McData (acquired by Brocade), SureBeam Corporation (bankrupt), InRange Technologies (acquired by CNT), Western Multiplex (merged with Proxim), PortalPlayer (acquired by Nvidia), Verisign (acquired by Symantec), AtheroGenics (bankrupt), and the list of failed IPO’s goes on.

Research shows only 0.1% of companies ever reach $250 million in annual revenue and only 0.036% of companies ever surpass one billion.

Let’s go back to those 30,000 venture-backed start-ups. When VCs fund a start-up, they intend for it to be a home run – one that surpasses the $1 billion mark in annual sales.  Statistically speaking, if there were 30,000 start-ups funded, only 30 would reach $250 million in sales and only 11 would achieve the VC’s expectations with $1 billion in annual sales!

Investors ride the waves of economic prosperity whenever possible.  Look at the lopsided returns during the Semiconductor, PC and Internet waves.  It’s akin to a gold rush business.

Does this matter to the aspiring entrepreneur? No, not at all. People want to believe that they will be the one because someone will be the lucky one. Its human nature to want to be the world champion because someone will be the champ and it might as well be them. It’s the reason athletes aspire to be Olympic champions. Whether athletics or business, it’s still the same, the desire to be counted among the best.  Many will try, despite the odds and a few will actually succeed. What would the world be like if no one tried because the odds are against them?

Filed under: From Concept to Start-Up

Tags: funded start-ups, start-up statistics, start-ups odds of success, venture-backed IPOs, venture-backed start-ups