Why Venture-backed Companies Fail
In 2022, over half a trillion venture capital dollars were invested in companies around the globe. The US is where a majority of those companies were located, with $241 billion going to US-based companies.
Amazingly, this is actually a decrease from the peak of the recent VC gold rush in 2020 and 2021 — and there’s still a strong tailwind propelling money into companies at all stages. This appetite of investors will never go away. It may ebb and flow, but it will always be there as a strong demand. There will always be money to be raised.
And yet, despite all that cash flowing into VC-backed companies, twenty-five to thirty percent of them will fail. One in five fail by the end of their first year; only thirty percent will survive more than ten years.
Startup Failure Rates
Any founder will immediately speak to the stress involved in running a VC-backed company, no matter if it’s pre-seed or in Series D — they’re putting everything they have into making the business work. But at the end of the day, about a third of them won’t succeed. Seems like a bleak picture, doesn’t it?
Here’s the silver lining: if you can make it to a Series C, your chances of failure plummet. Pre-seed failure rates are around sixty percent; Series B failures are about thirty-five percent; but make it to Series C, and the failure rate goes to one percent. That’s right. One. You’re ninety-nine percent likely to make it if you can survive to that point.
There are a lot of reasons companies fail. They get mismanaged, they get out-competed, they can’t make the margins work — those are some common reasons. And if you’re a founder, you’re probably thinking about avoiding those every single day.
But what are the reasons companies succeed?
Is there a pattern that can be found, a secret sauce that separates the winners from the losers? Is there a blueprint that could show you the exact playbook that led one company to a high-dollar exit, and the next company to crash and burn?
After twenty years of working with companies at all stages, I can tell you that the answer to that is yes.
Team Building to Win
It’s probably not what you think. It’s not a particular operating system, funding amount, or even the mix of characteristics of the CEO Founder. Those things obviously matter, but they’re not the secret sauce.
The difference between companies that succeed and companies that fail is their teams. Not the exact people on the team, although that’s a piece of it. Not the work the teams are doing, although obviously that makes a difference, too.
Winning teams are differentiated by how they work, together and individually. How does the team operate on a daily basis? What is their culture? What are their core behaviors?
Peak Team Behaviors
You can always spot an unstoppable team by their behaviors. In the hundreds of VC-backed teams I’ve coached, I’ve seen a specific set of behaviors that always indicates a winning team — and without these behaviors, your team is likely to fall behind or get stuck.
Alignment: Getting everyone on the same page about Why, Where, When, What, How, and most importantly, Who. Everyone needs to be moving in the same direction, or functionally, you’re standing still.
Symbiosis: Creating an environment of trust, respect, and unity. Without symbiosis, you’ll notice silos forming and team members working independently from each other — sometimes even at odds without realizing it.
Communication: What brings teams together and keeps them together. Poor communication absolutely kills morale and motivation, and along with them, your company’s goals.
Empowerment: Successful teams empower their members, providing autonomy and support for decision-making and ownership of work. When people have autonomy, they are more engaged, more creative, and more productive.
Learning: A team that learns from itself is a team that constantly moves forward. We’ll build the learning habit on both the individual and team levels.
In my twenty years of working with VC-backed companies at all stages — from pre-seed to exit — I’ve seen that these five behaviors are the difference between success and failure. Without these five behaviors deeply ingrained and constantly reinforced, results won’t happen.
There are a lot of important team behaviors to build, but these are the five dealbreakers your team needs to build and master in order to win.
Read more about Why Venture-backed Companies Fail in my book “Peak Teams - Mastering the Habit of Unstoppable Venture-backed Companies”