What Percentage of Startups Fail: 24 Stats and Facts for 2022
Technology has increased the variety of startups that try to take on market leaders. However, a percentage of startups fail because it’s not easy to transition from a startup to a company with millions in annual revenue and hundreds of employees.
On this page, we will highlight startup failure statistics that showcase the difficulty of starting a new business. You will get an idea of how many startups fail, the top reasons it happens, and the common problems that lead to failure. Also, read until the end for answers to commonly asked questions about why startups fail.
What Percentage of Startups Fail: Top 10 Facts for 2022
90% of all startups fail eventually.
Most startups begin with less than $5,000 in the bank.
70% of startups in the United States are launched from home.
A quarter of startups do not get the funding they are seeking.
Cash flow problems lead to the downfall of 82% of startups.
63% of all startup failures are in the IT industry.
75% of venture capital invested startups fail.
79% of startups begin with insufficient funds.
Only 40% of startups are profitable.
Half of all European startups fail during the first three years.
Basic Startup Failure Statistics
Around 90% of all startups fail.
This is arguably the most daunting startup statistic that indicates the difficulty of succeeding with a new startup, and there is a high percentage of new businesses that fail. However, these statistics reflect the success rate of startups in the long run. They might be successful for a few years before market conditions or other circumstances pose challenges too difficult to overcome.
Some entrepreneurs might launch several startups during their careers before they have one that succeeds in the long term.
Around 40% of startups are profitable.
On the surface, a business might look successful, but in reality, it takes a lot of work for functional companies to become profitable, which lowers the general startups success rate. It can take years of business growth and generating new customers before profitably enters the equation.
Startups that want to improve their odds of success need to reinvest all the money they generate back into the business, improving the infrastructure necessary for growth.
Around a third of startups have less than $5,000 to begin with.
Stats on business failure show low starting funds are a major reason why more than 50% of startups fail. Eventually, startups run out of resources, and they have to shut down until more money is secured.
Additionally, 58% of businesses start off with less than $25,000 in the bank. Lack of funds can be managed if the expenses are kept low, but that does not facilitate fast growth.
(Small Business Trends)
80% of Indians feel that starting a business in their local area presents a good opportunity.
Indians are predominantly oriented towards local-based businesses. Indian startups raised $42 billion in 2021, and the country is expected to have a GDP growth of 7.7% between 2021 and 2024.
Therefore, India is a booming economy where a lot of new businesses are spearheading growth. As of Jan 2022, there have been 83 unicorns in India with a total valuation of $277.8 billion.
Around 70% of US-based startups are launched from home.
The internet has made it easier than ever before for anyone to start a business from home. You can store products in the garage and handle all sales online. However, the large percentage of home-based businesses indicates the lack of professionalism among new business owners, and also, it can decrease the startup success rate.
The high startup failure rate is a result of insufficient business experience to navigate the choppy waters of the first few years.
(Small Business Trends)
Business founders require 2-3x more time than they originally expected to validate their business idea.
Validating a business idea involves showing that it can be profitable and meets market demand. However, new business owners underestimate the amount of work and time that is required to validate ideas.
Longer track history and larger sales volumes are important parts of validation. However, these cannot be rushed, which means business growth is slower than most entrepreneurs anticipate.
66% of small businesses outsource tasks to other small businesses.
This is one of the small business startup statistics that show it is important for a new business to cut costs. Outsourcing tasks is one way of getting the most bang for the buck. However, bigger firms might charge more, while smaller businesses could offer better value.
This means that many small businesses outsource jobs to one another in the pursuit of growth. Outsourcing is easier for small businesses because they do not have to commit to in-house employees that are more expensive to maintain.
81% of small business owners work overtime.
This statistic indicates that it takes a lot of work to launch and maintain a business. Many business owners need to work overtime for years to ensure the long-term success of their venture. That's because they fill many roles until they have the funds to hire more employees or outsource the work.
Working overtime can increase the success rate of entrepreneurs in many cases.
82% of startups are self-funded.
This indicates that most entrepreneurs struggle to secure outside funding to grow their startups. Many new business owners may spend years saving funds to launch their idea and realize that they need more money to sustain growth.
However, the number of business funding sources is increasing, which means that entrepreneurs can increase their chances of success and also increase the success rate of startups in general. The best way to secure funding is to showcase an idea that is profitable and meets market needs.
(Small Biz Trends)
25% of businesses do not secure the funding they were looking for.
The inability of so many startups to get funding is a large contributor to overall startup failure rates. It means that businesses need to make ends meet by cutting costs and potentially reducing the quality of the end product. This can lead to a downward spiral of getting bad reviews and less business.
Securing funding is a business skill that requires practice. Knowing where to look for funding and how to ask is part of the puzzle. The business must also have a good risk profile to be worth the investment for banks and venture capitalists.
European Business Startup Statistics
50% of startups in Europe fail during the first three years.
This percentage is a sign of the difficulties that business owners face. The rise in inflation and higher fuel prices will surely increase the problem of starting a new business and making it successful in the long term.
So how long do startups last? The first few years of a company are traditionally the phase where businesses fail. If they can make it to year five, the chances of long-term success are much higher.
65% of people in the UK want to start a business.
With around two-thirds of the population wanting to start their own business, it highlights the cultural shift from just a few decades ago. In previous years, the traditional road to success was to get in with a good company and climb the corporate ladder.
Nowadays, starting your own business is arguably the best road to success for many people. This could be fueling the high startup failure rates since not everyone is equipped to create a successful business.
(Micro Biz Mag)
In Europe, the percentage of startups that fail is 82% for first-time startups.
Typically, the first few businesses a new entrepreneur launches provide the function of learning the ropes. Each mistake made is an opportunity to learn. The startup failure rates of business owners that launch their 4th and 5th companies are much lower.
Startup funding statistics suggest $100 billion worth of capital was poured into 98 new European startups.
Funding boosts startup growth rates and reduces their odds of going under during the first few years. The investment allows mistakes to be masked since adding money to the equation reduces the chances of them going bust.
However, pouring money into a business model that is not successful will not work. Solid business practices are required for long-term success regardless of how much backing is provided.
(State of European Tech)
Stats About the Top Reasons Startups Fail
Cash flow problems lead to 82% of business failures.
Unsurprisingly, cash flow is the number one reason why startups fail. After all, when the money runs out, businesses need to declare bankruptcy and close their doors. However, in reality, the problems that lead to a lack of cash flow might provide a clearer picture of why the startup has failed.
It might be because of a lack of sales, outdated products, or poor brand image. Digging deeper into the numbers also helps businesses figure out what amends they can make in the future, which can also help reduce startup failure rates.
79% of businesses that fail started out with insufficient funds.
One of the basic facts about the business startup failure rate is that for new business owners, acquiring funds is one of the biggest hurdles. The top sources of funding include savings, bank loans, and investments from loved ones. Also, investment groups may provide funding for a share of the company. Usually, to secure funding, the business must provide proof of concept and profitability.
The lack of market demand leads to many startup failures.
Business owners believe that the product or service they are providing will be in-demand. However, a high percentage of startups fail because of a lack of market research.
To reduce startup failure rates, business owners need to figure out what market they are getting into and if there is a gap. It might take tinkering with the product to offer something that people will buy in hordes.
Startup Failure Rates and Statistics
The IT industry has the highest startup failure rate at 63%.
Startups statistics indicate more than 50% of startups that fail belong to the IT industry. The speed of development in the IT industry is transforming the world. There are a lot of opportunities for entrepreneurs to provide new technologies and meet the constantly changing needs of modern businesses.
However, navigating uncharted waters results in a high startup failure rate. As businesses compete in the same market, many fail to attract enough customers to grow. Also, some businesses become obsolete within a few years of launching because they fail to innovate.
The construction industry has the second-highest failure rate of 53%.
According to the startup failure rate by industry, the high failure rate within the construction industry is partly due to the lack of maintaining a healthy amount of capital. Projects can become delayed or require more money than initially projected. This leads to large negative balances that eventually cause a business to collapse.
Startup Success Statistics
The highest number of searches on startups occurred in 2020.
Startup statistics indicate that many people became interested in learning more about how to start a new business in 2020. However, since the start of the pandemic, people may have been putting off the idea of investing in a new business to reduce the risks.
Overall, 35% of people either do not want to start their own business or are unsure. This means the majority of people would like to create something of their own given the opportunity.
(Micro Biz Mag)
There are 1,000 unicorn companies in the world.
Unicorns are another term for successful startups with a valuation of $1 billion. Compare this to 2013 stats, where only 39 companies in the world could be classed as unicorns. Also, according to Statista, there will be more unicorns in the coming years, which will help to increase the average startup company success rate.
32 Decacorns exist worldwide.
Decacorns are successful startups that have received a valuation of $10 billion. Therefore, they are 10x bigger than unicorns. The tech startup success rate is normally higher, so technology-based companies are in the best position to grow to valuations of above $10 billion. That's because they have highly profitable models that are scalable.
Hectocorns are 10x bigger than Decacorns, and they have a valuation of $100 billion. There are only two Hectocorns at the time of writing: SpaceX and Bytedance.
5.4 million applications were filled in 2021 in the pursuit of launching new businesses.
Americans' go-getting attitude means millions of new business applications are being filled each year. In addition, the growth of venture capital is allowing new businesses in the United States to enjoy strong support.
Startup funding statistics show the global venture capital market was worth $211.3 billion in 2021, and most of those funds go towards early-stage funding for global startups.
75% of venture-backed startups fail.
What percentage of venture backed startups fail? Having venture capital does not immunize businesses from failure, but it does increase the chances of success. The 75% failure rate compared with the 90% one indicates that venture capital positively affects the success rate of startup businesses.
Money is one factor, but some venture capitalists might provide expert advice or a support network for new business owners. Again, this offers a competitive edge compared to other startups.
The Bottom Line
Overall, the startup failure rate statistics mentioned above indicate that many startups fail because they don't secure funding, do not anticipate the amount of time required for proof of concept, and have cash flow problems. Money is the fuel that makes a business grow. New business owners underestimate the effort required to launch a successful business and do not analyze the market correctly, which is not a great idea when looking to increase a startup company's success rate.
However, the number of opportunities to secure funding is growing. Venture capital firms are pouring billions of dollars into businesses worldwide. Therefore, startups have the chance to proliferate with the right presentation.
What is classed as a startup failure?
Why do most startups fail?
What can startups do to avoid failure?
What happens when a startup fails?
What is the biggest reason startups succeed?
What are the best ways to get funding for a startup?
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