Every year, millions of startups are launched. However, 9 out of 10 startups fail to establish themselves properly due to multiple reasons. Factors like lack of funding, insufficient resources, improper management, product not fulfilling the needs of the audience, lack of cash flow, etc., contribute to the failure of the startups.
Currently, there are 31.7 million small businesses in the United States.
In the following article, we have compiled all the facts about startup failure rates and the reasons behind it. You will also find facts and figures regarding startup failures across different industries.
Startup Failure Rates 2023 (Top Picks)
- 9 out of 10 startups fail. That is equivalent to 90% of startups.
- 10% of startups fail in the first year of launching.
- 80% of the startups in the United States fail.
- 65% of startups survive for an average of 15 years.
- First-time business owners who launch a startup have an 18% success rate.
- 42% of startups fail due to not supplying the product in demand to the market.
- 22% of startups fail due to a lack of proper strategies for the market.
- $3,000 is the average cost of launching a startup in the initial stages.
- 82% of the startups were reported to be shut down due to cash flow issues in the year 2018.
- 70% of the startups in the US are launched from home.
General Startup Statistics.
With millions of startups blooming and failing, the startup scene is forever evolving. In the following section, we have added general statistics related to the startups and their failure and success rates that can help you understand the scenario better.
- Startups in their early stage require three times more time to validate their products in the market.
- The startup founders overestimate the intellectual property of the company by 255%.
- The startups in their early stage can increase the growth of their venture by 3.6 times. They also have the potential to generate 2.5 times more results.
- 99% of the businesses in the United States are considered small as they have less than 500 employees.
- The ratio of men to women entrepreneurs in the year 2019 is 10:7.
- It takes six months on average for a startup to hire someone.
- Startup owners spend 40% of their working hours on tasks that do not generate income.
- As reported in March 2021, only 80% of the startups survived in the first year.
- More than 50% of small businesses have a chief financial officer.
- 70% of new businesses fail in a time frame of 10 years.
In the following table, we have highlighted the failure rates of startups at different stages.
|Business Type||Failure Rate|
Sources: Failory, Statista, Forbes, Embroker, US BLS, Small business trends.
How Many Startups Fail?
Approximately nine startups out of ten fail. 20% of the startups fail to complete even one year in the market. In the following section, you will come across facts and figures related to the failure rates of startups.
- 90% of the startups fail and are shut down.
- Within the first year of establishment, 10% of startups fail.
- Companies with 11 to 50 employees are at greater risk of failure.
- 70% of startups fail within two to five years of their establishment.
The following table breakdowns the startup failure rates after various years of establishment.
|Until The End of The Year||Failure Rate|
- Only 6% of the startups that went over Shark Tank have shut down.
- 75% of venture-backed companies rarely return the cash to the investors.
- In 30 to 40% of cases of startup failure, investors lose their initial investment.
- Only 0.05% of the startups receive VC funding.
- 43% of entrepreneurs are concerned about the failure of their startups.
- 80% of e-commerce startups fail. The rest 20% succeed significantly.
- In the USA, 80% of startups fail.
The following table displays the startup failure rates in different countries around the globe.
|Country||Startup Failure Rate|
Sources: Forbes, Failory, Embroker, Small business trends.
What Are The Success Rates Of The Startup?
Out of 10, only one startup will survive in the market. These startups are either started by a business owner who runs a successful business or a founder who has planned all the stages of business in detail. In the following section, we have compiled all the statistics related to the success rates of the startups.
- Small business owners starting a company for the first time have a success rate of 18%.
- Success rate of business owners who have failed in the past is 20%.
- The business owners who have started a successful business in the past have a success rate of 30% for their new startup venture.
- Two founders increase the chances of a startup being a success by 30% due to more investment and growth rate.
- 40% of the startups are profitable.
- 70% of the startups in the US are launched from home.
- 66% of small businesses outsource tasks to other small businesses.
- Gaming startups have 50% of success rates.
- There are around 1000 unicorn companies around the world.
Sources: CB Insights, Forbes, Failory, Statista, Embroker.
How Much Does It Cost To Setup a Startup?
The starting cost of startups differs in different industries and sectors. Besides, the additional costs, like healthcare of the employees, Office space, maintenance of the system, etc., contribute to the ever-increasing costs of the startups. In the following section, we have compiled facts and figures about the costs required to set up a startup.
- On average, starting a new business costs the owners approximately $3,000.
- The retail, accounting, construction, and landscaping startups require average startup costs of $5,000.
- The most expensive startups are from the industry of healthcare, restaurants, and manufacturing companies. They require an investment of more than $100,000.
- The types of equipment required to start a startup can cost as high as $125,000. The costs may vary from industry to industry.
- $10,000 is the lowest average equipment cost required for a startup.
- Payrolls are the most crucial startup cost. It may require $300,500 on average per 5 employees.
- 58% of the small businesses in the United States need less than $25,000 to start their venture.
- 77% of the startups used personal funds to finance their businesses.
- More than $1 billion is required by startups in the capital industry like Airbnb, Uber, etc.
Source: Small business trends, Failory, Pitchbook, Embroker, Findstack.
Startup Funding And Investor Statistics
Most startups bloom and become successful after they receive funding from different investors and companies. Investments play a significant role in fueling startups. Let us take a look at some statistics related to the funding and investors of the startups.
- 26% of the startups in Europe depend on venture capital.
- A venture capital receives more than 1,000 proposals per year on average.
- 25% of the new businesses cannot collect the required investment amount. This affects their growth and slows down their progress.
- 75% of new businesses are financed from business loans, credit card debts, and personal cash flow.
- 30% of venture-backed startups are more likely to be failed.
- The capital for employees in 33% of the startups is less than $10,000.
- $250,000 is the startup capital for 12% of the employer firms
- In the year 2017, venture capital funding reached the amount of $155 billion.
- Only 1% of the startup emerges as unicorn startups like Uber, Slack, etc.
- In 2018, female founders brought in $2.86 billion in venture capital while male founders bought $109.36 billion.
Sources: Statista, Forbes, Fundera, National small business association, Failory.
What Are The Top Reasons For Startup Failure?
Different issues contribute to the failure of startups. However, some of the primary reasons are lack of cash flow, products unsuitable for the market, mismanagement of the team, etc. In the following section, we have compiled facts and figures related to the reasons that led to the failure of the startups.
- 34% of the startups fail due to the poor fit of their product in the market.
The following table breaks down the reasons for the failure of startups.
|Reason||Percentage of Startups|
|Lack of product-market fit||34%|
- 22% of the startups reported failing due to vague marketing strategies.
- 18% of the startups reported that they failed due to team conflicts, HR issues, etc.
- 42% of the startups failed due to not understanding the market demand.
- 16% of the startups failed due to financial issues, cashflow problems, and improper management of finances.
- 2% of the startups reported that they failed due to improper optimization of time and resources.
- 6% of the startups reported failure due to tech-related issues like improper security systems, outdated solutions, etc.
- 2% of the startups failed due to improper management of legal issues.
- After three to five years, the weak startups fail due to competition.
- In 2018, 82% of the startups were closed due to cash flow issues.
Sources: Failory, Investopedia, Business news daily, CB insights, Statista, Forbes.
The Failure Rate Of Startups By Industry
The failure rates of startups vary in different industries. Some industries have lower failure rates, while some have higher. In the following section, you will come across the failure rates of the startups observed across different industries.
The following table highlights the number of startup failure rates in different industries.
|Industry||Startup Failure Rates|
|Finance insurance and real estate||42%|
|Education and health||44%|
|Transportation and utilities||55%|
The fintech industry is one of the fastest-growing industries in today’s era. However, most startups fail in the industry due to immense competition and low success rates. Here are a few stats related to the failure rates of startups in the fintech industry.
- 75% of the fintech startups fail if they are venture capital-backed businesses.
- The investment of venture capital firms in the global fintech businesses went from $1.8 billion in the year 2011 to $30.8 billion in the year 2018.
- $50 billion is received by the fintech industry every year in the form of investments.
- 80% of the financial institutes in the United States are partners with fintech service providers.
- More than 8,775 fintech startups are there in the United States.
- $131 billion is the valuation of the largest fintech company in the world.
- $310 billion is the global value of the fintech company in the year 2022.
- At the start of the year 2018, blockchain and cryptocurrency startups raised around $3.9 billion in venture capital.
Sources: The Fintech Mag, Failory, McKinsey, Embroker.
Real Estate Startups
Starting a real estate business requires a large investment and determination. 42% of the startups fail in the real estate industry. The primary reason identified was a lack of cash flow. Let us take a look at some other interesting facts related to the failure rates of startups in the real estate industry.
- 48% of real estate businesses fail within the first year of establishment.
- $1.9 billion was generated by real estate startups in the year 2019.
- $62 million was generated by office-sharing startups in the year 2017.
- 31% of the prop tech investors consider investing in the real estate industry.
Sources: Embroker, Failor, Forbes, Tech, CrunchBase.
IT And Tech Industry
IT and the tech industry are the leading industries in today’s age. They work with other industries to make the world more automated and reduce human labor. But the start-ups in these industries have more chances of failing. Here are some interesting stats related to startup failure rates in the technology industry.
- 63% of the tech business fail within the first year of establishment.
- Every year in the US, 20 tech companies launched are expected to make more than $100 million in revenue
- 39 years is the average age of tech startup founders.
- $1.6 trillion is the valuation of the technology market in the United States.
- $102,000 per year is the average pay of an employee in a tech company.
- There was a 78% increase in computer and electronics manufacturing startups from the year 2007 to 2016.
- 454 tech deals were made in the year 2018.
Sources: Forbes, Embroker, Failory.
The construction industry has gained demand in the last decade. The startups in this industry are comparatively low due to a large amount of cash flow required to keep the startups growing. Here are a few stats related to the failure of startups in the construction industry.
- 20% of construction startups fail within the first year of establishment.
- Within the first ten years of establishment, 67% of construction startups are out of business.
- The construction startups only have a 36.6% chance of surviving longer than 5 years.
- The fastest-growing sector in the construction industry is the residential housing sector.
- It is expected that the contribution of AI in the construction sector will increase profit by 71%.
Sources: Crunchbase, Small business trends, Accenture, Embroker.
Future Of The Startup
Most of the startups in the future will be powered by artificial intelligence. Furthermore, technology will play an essential role in the growth of startups.
With most businesses shifting online, technology has come to the forefront in handling the products of all startups. 92% of business owners have an opinion that a website is the best digital marketing strategy. Hence, all startups use websites to list their products for online sale.
On the other hand, startups can research businesses in the same industry that have been successful for more than five years. This research will help them to learn from others’ experiences and will assist them in making their business a success.
Conclusion: Startup Failure Rates (2023)
That’s all about startup failure statistics.
If you are a small business owner, these stats will surely give you insights into the major reasons startups fail. You might also have got an idea about the mistakes that you must avoid and the precautions that are needed when starting a small business.
If you have liked reading startup failure statistics, you can check out our other articles from the website. We often update our articles with the latest trends and updates occurring around the world.