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View Full Version : 1/5 of Dot-Com Startups Failed


arn
Sep 20, 2002, 02:10 AM
http://news.com.com/2100-1017-958725.html?tag=fd_top

Nearly one in five start-ups backed with venture capital at the peak of the Internet boom went out of business before first-stage investors could sell their shares, costing them billions of dollars, according to a study released Thursday.

Some 22 percent of 1,842 start-ups financed by venture capitalists in 1999 have gone under, compared with an average of 15 percent failure rate for venture-backed companies started over the prior seven years, according to the report by research firm VentureOne.

Actually... 22% isn't that bad compared to the 15% - which is apparently the "routine" in VC.

drastik
Sep 20, 2002, 08:50 AM
As an interesting side note, I read in Harpers this month that a guy in Philly has been given a $350,000 grant to collect and publish, via web, the business plans of all the failed dot-coms he can dig up.

Also read that back in 96, greenspan warned of "irattional exuberance in the stock market" when it hit highs of aroung 6400.

Mr. Anderson
Sep 20, 2002, 09:31 AM
Originally posted by arn

Actually... 22% isn't that bad compared to the 15% - which is apparently the "routine" in VC.

interesting - but what made it a boom was that there were so many start ups - so overall the amount of money lost was probably much more.

sparkleytone
Sep 20, 2002, 11:37 AM
looking at those numbers, thats really not all that bad. the fact that 78% of .com startups are staying in business is still absolutely ridiculously high compared to your average business.

the fact that my father has created himself a successful business as a contractor is a not so common thing, yet would be expected if he was offering online services. wierd.

Gelfin
Sep 20, 2002, 01:34 PM
Originally posted by arn
Actually... 22% isn't that bad compared to the 15% - which is apparently the "routine" in VC.

But the difference is that the VC concerns sunk far more money into the dot coms than into earlier startups. If you're going to play for higher stakes, you don't want the house to suddenly worsen your odds.

Besides which, VCs expect their dollars to have an enormous effect on the survivability of a company. The overall rate for all small businesses is that something like 4 in 5 fail within the first five years. If VC investment lowers that rate to a mere 15%, that makes them pretty much the primary indicator of whether young companies float or sink. For the VCs' failure rate to suddenly go up 50% on some very large investments actually is very bad from their perspective.

rainman::|:|
Sep 20, 2002, 06:39 PM
i'm actually quite stunned... i had always imagined something like 1 in 20 startup companies actually made it through the crash... i guess the bombs just made bigger news...

i'm still not likely to become an internet venture capitalist anytime soon :)

pnw