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What Percentage of Startups Fail? [67+ Stats for 2020]

We read about wildly successful startups and unicorns 1startups valued at over $1 billion all the time. As of January 2020, there were over 600 unicorns.

But while launching a successful startup seems deceptively easy, that’s really not the case, especially nowadays.

The thing is:

In 1999, US startups created a massive 4.7 million jobs. Fast forward to 2019, and that number stood at 3.1 million.

These figures beg the question:

What percentage of startups fail?

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 2020

  • 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 2020 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: Medium)

  • How many startups fail in the first year? Around 20%.
  • 34% of startups close within their first two years.
  • Just over 50% of businesses make it to their fifth year.
  • Only 25% 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: Small Business Trends)

  • 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.

 

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.
  • At $240 billion, the European tech startup market lags behind the North American ($1.37 trillion) and Asian ($675 billion) ones in terms of valuation.
  • Venture capital investment in the European Union amounted to $8 billion in 2016, compared to about $35 billion in the US.

In case you were wondering:

“Is the European startup scene better than the North American one?”, you now have your answer. 

Clearly not. The failure rate of novice European entrepreneurs, in particular, is quite alarming. 

In addition, the latest figures show convincingly North America remains a better breeding ground for startups.

But not everyone agrees. 

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: Preferred CFO)

  • 79% of businesses that fail start out with too little money.
  • 77% of businesses do not have an 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. 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: Statista)

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 your 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 the highest success rate, with 58%.

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.
  • They are valued at more than $1.394 trillion combined.

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 27 decacorns in the world.

(Source: CB Insights)

  • Decacorns are unicorns with valuations of $10 billion and above, making them some of the most successful startups.
  • The most valuable unicorn in the world is Toutiao (Bytedance)
  • At number 2 and 3, we have Didi Chuxing ($56 billion) and Space X ($46 billion)

Bytedance is the Beijing-based parent company behind TikTok. They are a news and information platform. Didi Chuxing specializes in ride-sharing, AI, and autonomous tech.

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
  • The other hectocorn is ANT Financial, with a valuation of $150 billion as of April 2018

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 2 Billion times.

Out of the top 10 unicorns, 3 (including the top 2), are based in China.

In the second quarter of 2020, deal activity in Asia saw a surge of 20% compared to just 9% in Europe and 3% in North America.

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 2016, US startups experienced an average growth of 75.62%.

(Source: Statista)

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 2018, the value of venture capital investment 2temporary equity investment in new, forward-looking, non-listed companies in the US was $99.5 billion.
  • Less than 6% of US startups launched in 2018 were funded by venture capital.
  • What percentage of startups that get funding 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. In 2017, Latin America and the Caribbean had the highest rate of startups worldwide, with 11.7% of the working-age population involved in new entrepreneurial activities.

(Source: Statista)

It may come as a bit of a surprise, but startups are massively popular in Latin America and the Caribbean.

What’s more:

The region’s largest and most populous country, Brazil, is also the most entrepreneurial country in the world, with 13.8% of the adult population engaged in various business enterprises. It also boasts the most successful startup south of the Rio Grande. These are some truly impressive startup success rate statistics.

Startup Trends

Let’s look into the future of startups!

15. 64% of European startup founders would choose Europe over the US if they had to start over again. 

(Source: Startup Heatmap Europe)

  • In 2016, over 90% of European startup owners rated their business situation as good or satisfying.
  • Only 20.2% of European startup owners would work as employees if their current startup went under.
  • 62% would launch another startup.

How about that? More than half of startup owners in Europe are not tempted by the lucrative North American startup market, even though most are aware of what is the percentage of first-time startups that fail on the Old Continent. They’re not afraid to fail, either, as a safe majority would have no qualms about giving it another go. 

What’s more:

Access to the world’s largest market and a talent pool to match are significant reasons to feel confident about the future. No less an authority than Forbes has suggested that the future of startups lies in Europe

16. Vancouver was the best city in the world for startups in 2017.

(Source: People Per Hour)

  • In 2017, the Toronto-Waterloo region had between 2,100 and 2,700 operating startups.
  • Transport and analytics company Fleet Optics was the fastest-growing startup in Canada, experiencing a phenomenal 6,468% growth in revenue between 2015 and 2017.
  • Online learning platform Prodigy Game was the fastest-growing Canadian tech startup, with a stunning 2,387% growth between 2014 and 2017.
  • As of 2017, Toronto-based animation production company Tangent Animation was the fastest-growing media startup in Canada, with a CAGR of 5,222%.

Canada offers particularly fertile ground for startups. Not only does it boast one of the most livable cities in the world in Vancouver, but the British Columbia metropolis is also the perfect location to launch a startup.

And it’s not just Vancouver. The startup scene in Toronto has flourished in recent years as well. 

Forget about Silicon Valley: 

North of the border is where it’s at.

Startup Finance Statistics

Lat 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)

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. As of September 2018, around 50% of Indians were likely to start their own business.

(Source: Statista)

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 December 2018, the state of Maharashtra had the most startups in India (2,587).
  • Eight unicorns were born in Bangalore and New Delhi between 2012 and 2017.
  • Japanese giant Softbank has invested over INR 580 billion in Indian startups since 2014.
  • In May 2018, 46% of Indians believed doing business in the country was easier than it had been in 2014.
  • Information and cybercrime posed the biggest threat to Indian startups in 2017 and impacted what percentage of startups fail in the country.

The Indian government is serious about its commitment to startups3defined as entities aged seven or less and headquartered in India, which have an annual turnover of no more than INR 250 million and protection from hackers.

Now:

The Startup India initiative, which the government’s Department of Industrial Policy and Promotion launched in 2016, aims to support entrepreneurs and create a robust startup ecosystem. 

And up to half of India’s 1.3 billion people are considering taking advantage of the government initiative and launching their own startup! Smashing stuff!

Conclusion

We began this exploration of startup failure rate 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.

Sources:

  1. Medium
  2. Small Business Trends
  3. Igostartup
  4. Failory
  5. Preferred CFO
  6. Statista
  7. Failory
  8. Micro Biz Mag
  9. Statista
  10. CB Insights
  11. CB Insights
  12. Failory
  13. Statista
  14. Statista
  15. Startup Heatmap Europe
  16. People Per Hour
  17. Small Business Trends
  18. Statista

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