50-80% of the venture-backed startups currently operating will shut down or go on life-support (i.e. 3-4 folks working on them) within the next 18 months.
Anyone who has read much on startups and small businesses will realize that is completely reasonable. It has been said that small businesses fail very often. The Small Business Association has some very interesting statistics:
According to a study by the U.S. Small Business Association, only 2/3 of all small business startups survive the first two years and less than half make it to four years.
So, if less than half of all small business make it up to 4 years, what does that say for venture-funded companies. First, it typically takes some time in order to get some venture funding, for our calculations let’s assume an average of one year. If we are talking about an additional 18 months (about 2.5 years total), then it is very possible that 50% of these startups would fail. If you factor in the economy, failure rates change for various reasons. Company owners might not take as many risks because the ecomony is so poor. VCs and angel investors will likely be tighter with their money as well. They will probably be less likely to let a company try to “find its way” as opposed to “failing fast”. Given that venture funded companies are really trying to hit the big-time, the numbers also tend to more “failures”.
Another failure data point comes from SmallBizTrends.com. They break down failure rates by industry:
The data show that the four-year survival rate in the information sector is only 38 percent.
If the survival rate is 38%, obviously the failure rate is 62%. That is right in the middle of Jason’s failure numbers. Assuming that a poor economy escalates these numbers, then it is very likely that more than 50% fail in the next 18 months.
So, what else does Jason say? Well, I highly encourage you to read the newsletter. The second half of the newsletter has very good advice on how to execute within your startup and hopefully, how not to fail. Jason has a fairly good track record, so listening to his startup advice is probably a good idea.
Minor Update: My apologies to Jason for spelling his last name wrong in the title. It has been corrected.