Startup Failure Rate Statistics: The Coronavirus Effect 2021

Are you curious about the state of startup failure rates statistics in 2020? Then look no further.

We’ve curated, vetted, and categorized a list of up-to-date stats including the effects of the coronavirus on small businesses.

With so much going on in the world, we wanted to put together a guide with the most up to date stats all in one place.

Here are the most interesting startup failure rate statistics we think you should know:

1. It has been widely reported that 9 out of 10 startups fail, however new research suggests that 92% or 11 out of 12 start-ups fail as of 2019. (StartupGenome)
2. 50% of startups in 2020 say that access to talent is one of their primary concerns (Silicon Valley Bank)
3. 96% of tech startups continue to operate in spite of the Coronavirus crisis (StartupGenome)
4. 40% of global startups are in the “red-zone” meaning they have 3 months or less of cash before they fail (StartupGenome)
5. The #1 reason startups fail is because there was no actual market need. (CB Insights)
6. 20% of businesses fail within their first year as of 2019 (US Bureau of Labour Statistics)
7. 45% of businesses fail within their first 5 years of operations as of 2019 (US Bureau of Labour Statistics)
8. After 10 years of operations, that number drops down to 65% (US Bureau of Labour Statistics)
9. 774,725 businesses were started in the United States in 2019 (US Bureau of Labour Statistics)
10. 189,465 businesses failed in the United States in 2019 (US Bureau of Labour Statistics)

The effects of Coronavirus have been devastating to many people and businesses around the world. Normal small businesses, as well as tech startups, face many challenges going forward as a result of the pandemic.

• 74% of tech startups had to let go of some full time employees. (StartupGenome)
• 72% of global tech startups have seen a decline in revenue since the start of the pandemic. (StartupGenome)
• The average global startup has seen a 32% decrease in revenue. (StartupGenome)
• Not every startup sector has been affected equally, for example the blockchain/crypto currency sector has fared the best – only seeing a 14% decrease in revenue. (StartupGenome)

• The worst hit sector was travel and tourism which saw a 70% decrease in revenue. (StartupGenome)
• Global venture capital funding dropped approximately 20% as a result of COVID-19. (StartupGenome)
• 3 out of 4 tech startups have seen their revenue decline since the start of the pandemic. (StartupGenome)
• 4 out of 10 global startups are have 3 months or less of cash available. (StartupGenome)

• 65% of all businesses, including 34% of series A+ startups have less than 6 month’s worth of cash. (StartupGenome)
• Tech startups will be key to economic recovery, in 2019 they accounted for 2.8 trillion and are growing 10% a year. (StartupGenome)

In this article we differential between a regular small business startup vs a real startup, which we call a “tech startup”.

Not all new businesses can be classified as a startup because they are not innovative or scalable. For example, a new pet grooming business would be classified as a small business because there are many other pet grooming stores.

A tech startup is an innovative business that doesn’t rely on employees servicing customers to scale. For example, a company like Neflix was a tech startup because they created software that could be scaled on a global level that was necessarily dependant on hiring additional employees.

Here are the statistics on how many startups fail:

• The latest research from 2019 indicates the failure rate of all start-ups is 92% compared to the often quoted 90% in 2014, which suggests it is becoming harder for businesses to succeed. (StartupGenome)
• US businesses that were started in 2004, 83% failed in 2019. (US Bureau of Labour Statistics)
• In the US in the first 3 years 31% of businesses fail. (US Bureau of Labour Statistics)
• The failure rate in Europe is higher than in the United States: 50% of businesses fail in the first 3 years. (IGoStartup)
• Businesses are less likely to fail as they age. For example 66% of startups with employees will survive after 2 years and 50% will survive after 5 years. (US Bureau of Labour Statistics)

• After 10 years 35% of startups will survive. (US Bureau of Labour Statistics)
• Contrary to popular opinion, only 17% of restaurants fail within their first year not 90% like some articles suggest. (Forbes)
• Startup failure rates are actually in a long-term decline and have fallen by 30% since 1977. (Entrepreneur)

If you are looking to build a startup you want to make sure it’s in an industry that gives you the best chance of success. 

That is why we looked at the stats for regular small business startup failure rates across industries in the United States:

1. 58% Finance Insurance and Real Estate startups were still operational after 4 years
2. 56% Education and Health startups were still operational after 4 years
3. 56% Agriculture startups were still operational after 4 years
4. 55% Services startups were still operational after 4 years
5. 54% Wholesale startups were still operational after 4 years
6. 51% Mining startups were still operational after 4 years
7. 49% Manufacturing startups were still operational after 4 years
8. 47% Construction startups were still operational after 4 years
9. 47% Retail startups were still operational after 4 years
10. 45% Transportation, Communication and Utilities startups were still operational after 4 years
11. 37% Information startups were still operational after 4 years

(Source: Statistic Brain)

If you are looking at starting a traditional small business than these numbers can help you make a decision about which industries have the highest failure rate.

However, for global tech startups the numbers look much different as these as growth companies in experimental, non-traditional industries. Startup Genome provides us insight on which startup sub-sectors are growing, mature, or declining based on early funding deals and exit deals over 5 years from 2019:

1. Advanced Manufacturing & Robotics (107.9%)
2. Crypto/Blockchain (101.5%)
3. Agtech & New Food (88.8%)
4. AI, Big Data, & Analytics (64.5%)
5. Adtech (47.9%)
6. Gaming (40.4%)
7. Digital Media (38.9%)
8. Edtech (15.8%)

As you can see, startups that involve Robotics or Blockchain tend to get a lot more funding much higher payouts (exit growth) than startups in Edtech and Digital Media.

This doesn’t mean that your startup is doomed to fail if you are in one of these categories, it just means that it will be more of an uphill battle.

Looking at the failure rate of a regular startup can make you wonder “how the heck can I avoid making the same mistake?”

Here is the top 10 reasons why a startup can fail:

1. 42% fail because there was no real market need. (CB Insights)
2. 29% fail because they run out of cash. (CB Insights)
3. 23% fail because they do not have the right team in place for the job. (CB Insights)
4. 19% fail because they got out competed. (CB Insights)
5. 18% fail due to pricing issues. (CB Insights)
6. 17% fail because of a user unfriendly product. (CB Insights)
7. 17% fail because of a product without a business model. (CB Insights)
8. 14% fail due to poor marketing. (CB Insights)
9. 14% fail because they ignored customers. (CB Insights)
10. 13% fail because of the mistimed introduction of a product. (CB Insights)

Money and financing is a key ingredient to the success of a traditional small business or startup. With the coronavirus pandemic it has made financing even harder than before.

Here are the most interesting startup financial stats we found:

• 33% of small businesses start with less than $5000. (Kabbage)
• 58% of small business startups require a budget of less than $25,000 to start. (Silicon Valley Bank)
• 41% of startups in the U.S. believe that getting access to capital is getting harder. (Silicon Valley Bank)
• 42% of startups in the U.S. expect venture capital to be their next source of funding in 2020. This is down 10% from the year before. (Silicon Valley Bank)
• 12% of startups in the U.S. expect organic growth to be their next source of funding in 2020. This is up 6% from the year before. (Silicon Valley Bank)
• 42% of startups in the U.S. expect venture capital to be their next source of funding in 2020. This is down 10% from the year before. (Silicon Valley Bank)
• 16% of small business owners expect family and friends to be their next source of funding in 2020. This is up significantly from the year before. (Silicon Valley Bank)
• 10% of small business owners expect corporate venture investor to be their next source of funding in 2020. This is up 1% from the year before. (Silicon Valley Bank)
• 8% of small business owners expect corporate venture investor to be their next source of funding in 2020. This is unchanged from the year before. (Silicon Valley Bank)
• 65% of small business owners admit that they lack sufficient budget to lay the foundation of a startup. (Silicon Valley Bank)
• 93% of small business owners say they calculated a potential run rate of shorter than 18 months. (Silicon Valley Bank)

So who are starting small businesses? The latest statistics in 2020 provided by Guidant Financial have a few surprises. Let’s take a look at the most interesting stats for small business owners in the US:

• The #1 reason people started a business is because they wanted to be their own boss. (Guidant Financial)
• 48% of small business owners say they’re very happy, compared with only 7% who say they’re very unhappy. (Guidant Financial)
• 27% of small business owners are females, this is up 2% from the year before. (Guidant Financial)
• 30% of small business owners have just a highschool degree. 31% have an associate degree, 17% have a bachelor degree, 18% have a masters degree and 4% have a doctorate. (Guidant Financial)
• 44% of small business owners are gen xers, 41% are baby boomers, 12 % are millennials and 2% are silent generation. (Guidant Financial)
• The stats for ethnicity of small business owners are: 71% White and/or Caucasian, 7% African American, 6% Latino, 7% Asian, 5% Others. (Guidant Financial)
• The stats for the age group of small business owners are as follows:
  • 70+ years: 4%
  • 50-59 years: 35%
  • 40-49 years: 25%
  • 60-69 years: 18%
  • 30-39 years: 14%
  • 18-29 years: 4%

Although being in the right city doesn’t guarantee your startup will not fail, it can definitely help you connect to the resources you need. 

Here is the latest list from Startup Genome of the top cities to launch a tech startup:

1. Silicon Valley
2. New York City
3. London
4. Beijing
5. Boston
6. Tel Aviv – Jerusalem
7. Los Angeles
8. Shanghai
9. Seattle
10. Stockholm
11. Washington DC
12. Amsterdam
13. Paris
14. Chicago
15. Tokyo
16. Berlin
17. Singapore
18. Toronto-Waterloo
19. Austin
20. Seoul
21. San Diego
22. Shenzhen
23. Atlanta
24. Denver-Boulder
25. Vancouver
26. Bangalore
27. Sydney
28. Hangzhou
29. Hong Kong
30. Sao Paulo

I know what you’re thinking, reading all the startup failure rate statistics can be pretty discouraging. But in between all the depressing stats are some really encouraging tidbits. Like 48% of small business owners reporting themselves as being very happy.

Also, after the first two years, the chances of your startup failing drops dramatically. So if you manage to stay in business long enough, the less like you will fail.

If you think I missed any important stats, make sure to connect with me and let me know!

Sources:

• StartupGenome
• Silicon Valley Bank
• US Bureau of Labour Statistics
• CB Insights
• Silicon Valley Bank