Yes, it’s true that we say around 90% of startups will fail, but lets be honest, it’s mostly an anecdotal statement that we hope won’t come true.
Building on that, we also like to say that: “entrepreneurs are in the business of failure, and investors are in the business of exits”. I would love to believe that only 60% of startups fail, because that means investors are exiting more, but ask most of us, and you’ll see we wish it was that low.
To be fair, this was a study done by a single LP over 20 years, showing how successful they are. To put it another way, the data was collected to show that they do not suck when it comes to investing. It was a completely biased and skewed study, though seemingly extensive, with over 27,000 data points, but as much as I like to trust first, I always verify after. Until the methodology and more information related to the study is released, I want to make sure people don’t take it at face value or ever quote it.
Lets clarify a few things that are easily missing from one paragraph, and mention their study conclusions:
- Venture backed sounds like it completely disregards seed investments, which we all know, are riskier and would increase the %.
- They have $190B AUM and are 40+ years old, so they know all the right people. I would love to know the funds they are LPs in, but I can guess a few rhyme with: Lequoia, TEA, Bandreessen Torowitz, Pessemer, etc.
- They also define failure as any company that returns 1X or less, but unfortunately most exits aren’t public, and others just slowly fade away. Does that even take into account acqui-hires that are hard to quantify?
I usually bite my tongue when I see random stats like this, but I respect Erin Griffith (great writer and panel moderator) at Fortune, and can’t let this proliferate. The difference between 60% and 90% doesn’t change anything — it’s not like fewer companies will fail and/or more will succeed. And really, this is just a promo for Cambridge Associates that states that they have a slightly better track record than most, though we’ll never know until they release the numbers. Maybe they just got a lot of 2Xer or illiquid investments that will never exit, but are great on paper.
It’s really the next paragraph when Griffith tries to make a point that I would like to touch on. I don’t think 60% or 90% helps founders cope with failure just because our expectations of success are so low as investors. I hope to never back a founder who would ever take comfort that should they fail; it’s business as usual, and that’s OK. They might joke about it as an off-the-cuff comment during small talk, but it’s demeaning and sometimes very depressing after all their hard work.
I think we can all agree though, that this is a hit business, so, if somehow, 60% is a true fact, I still want that 1% that is a grand slam!
