Is startup funding finally drying up? (2024)

FAQs

Is startup funding finally drying up? ›

Startups are dying amid a historic drought in venture funding, showing how an indispensable engine of Silicon Valley is suffering even as technology stocks rebound and investors swoon over artificial intelligence.

October's investment total marks the acceleration of the trend: VC funding has gradually tapered off since the record year of 2021, and some investors have warned of a possible "mass-extinction event." Down rounds, often loathed by VCs and startups alike, have become far more commonplace than usual.

Some 3,200 private venture-backed U.S. companies went out of business last year, according to Pitchbook data. So it's safe to assume that 2024 will be another year where a lot of startups will shutter.

As a general rule of thumb, funding should last somewhere between 12 and 18 months. It should be enough capital to allow you to comfortably hit your goals and the forecast you laid out during your pitching and fundraising process.

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.

Following a turbulent 2023, Pitchbook makes several positive projections for 2024: Positive economic signals in 2023 indicate a comeback in IPOs in 2024. U.S. VC fundraising is expected to increase, making it stronger than 2023 and comparable with 2020 figures.

In 2024, I don't expect significant changes in valuations across all stages. However, if the optimistic interest rate forecasts for 2024 hold true, startup valuations may see a slight increase by the year's end. However, because of the tough environment, VCs may remain cautious about investing at later stages.

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.

Industry data on startups from the Bureau of Labor Statistics provide valuable insights into the failure of startups. 20% of new businesses fail within the first two years. 45% of new business startups don't survive the fifth year. 65% of new startups fail during the first ten years.

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.

What percentage of startups get funding? ›

Startup conversations typically revolve around investors, often placing sales growth and business operations secondary. This prioritization suggests that the only way to scale a company is with other people's money, and, in turn, giving up equity. In reality, less than 1% of startups get investment capital.

In the early stages of a startups life, investors expect to see a return of 3 to 5 times their initial investment within 5 to 7 years. However, this is only a rough guideline, and actual returns will vary depending on the company, the stage of the company, and the amount of risk the investor is willing to take.

According to a report by Startup Genome, 90% of startups fail. Why? One of the biggest reasons is that just having an idea does not guarantee success and many startups are proof of that. When you have an unproven idea, it's hard to know where to start or whether your idea has any merit.

On average, 63% of tech startups don't make it, 25% close down during the first year, and only 10% survive in the long run. Venture-backed fintech startups fail in 75% of cases. Topping that, blockchain and cryptocurrency startups have a shocking 95% failure rate and a very short lifespan.

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.

Fundraising has slowed since 2021, when venture capital groups took in $555 billion, according to the report. Last year, they raised a third of that amount. In the first three months of this year, $9.3 billion was raised in the United States, about one-tenth of the total raised in 2023.

Specifically, global startup investment in 2023 reached just $285 billion, marking a 38% decline year over year, down from the $462 billion invested in 2022. However, through a broader scope, overall funding in 2023 was down by less than 20% when compared to the pre-pandemic years of 2018 to 2020.

Venture capital is a high-risk, high-reward type of investment, and there is no guarantee of success. While VC firms aim to identify the best opportunities and minimize risk, investing in startups and early-stage companies is inherently risky, and there is always the potential for loss of capital.

Venture capital (VC) investment in Q2 2023 dropped to $29.4 billion, down from $44.4 billion in Q1 2023, a decline of 34%. The decline isn't as stark as it sounds, however. In Q1 2023, two mega-round deals accounted for $16.5 billion. This could point to the market finding a new equilibrium.