Start-up failures skyrocket 📈

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Start-up failures rise 60% as founders face hangover from boom years

Start-up failures in the U.S. have skyrocketed by 60% over the past year, a stark reality for many founders grappling with the aftermath of the funding boom during 2021-22. This surge in shutdowns is a wake-up call, signaling the need for founders to navigate a much harsher fundraising environment and protect their ventures from potential collapse.

Why it matters: As a founder, you're likely feeling the pressure of a venture capital market that's become increasingly selective. While billions are still flowing into AI start-ups, many other sectors are being left out in the cold. The challenge now is not just about growth—it's about survival.

By the numbers: Carta, a platform that helps manage equity for private companies, reports that 254 of its venture-backed clients folded in the first quarter of this year alone. That’s a staggering sevenfold increase in the failure rate compared to when Carta began tracking these numbers in 2019.

• Recent casualties include Tally, a fintech company that raised over $170 million but couldn't secure further funding, and Olive, a healthcare start-up once valued at $4 billion. These aren't isolated cases—they're part of a broader trend that could impact anyone.

Zoom in: The root of these failures lies in the "crazy fundraising environment" of the boom years, where VCs encouraged founders to raise large rounds, often at inflated valuations. Now, with interest rates up and venture capital tightening, many companies are finding it nearly impossible to raise new funds, especially if they've already cut costs and sacrificed growth to stay afloat.

What you need to know: The rules have changed. Peter Walker from Carta notes a "huge drop" in the number of companies securing follow-up funding within two years of their last round. If your start-up has been in survival mode, trimming expenses and scaling back, you might not fit the traditional VC model anymore. It's crucial to reassess your growth strategy and consider alternative funding sources or operational pivots.

The bottom line: The path ahead is challenging, especially for those outside the AI gold rush. While AI start-ups are soaking up the lion’s share of new capital, many other sectors face a tough fundraising environment. As a founder, now is the time to critically evaluate your business model, explore diverse funding avenues, and adapt to this new landscape. The future of your start-up depends on it.

Go big or go home: why VCs bet on risk-takers, not nice founders

VCs aren’t looking for friendly founders—they want those who take massive risks and think differently.

Why it matters: Of the billionaires on the 2023 Forbes 400 list, 70% are self-made, with many having started from middle-class or lower backgrounds. These individuals didn’t get there by playing it safe; they took high-risk bets that paid off big. VCs know this and are looking for founders with that same edge—those who see opportunity where others see risk.

By the numbers: In 1982, only 40% of the Forbes 400 had started their own businesses. Fast forward to today, and that number has jumped to 70%. The rise of self-made billionaires is largely due to founders who weren’t afraid to go all-in on their ideas, even if it meant failing spectacularly before succeeding.

Zoom in: Founders like Chamath Palihapitiya and Josh Wolfe argue that adversity, whether it's from personal challenges or feeling out of place, drives people to take the kinds of risks that lead to massive success. VCs are increasingly drawn to these types of founders, who are often motivated by something deeper than just making money—they’re out to prove something to the world.

The bottom line: If you’re comfortable, you might be successful, but you’re unlikely to disrupt industries or make it to the top of the wealth curve. VCs are looking for founders who are willing to embrace uncertainty, take big risks, and potentially fail before they succeed. It’s not about being nice—it’s about going big or going home.

^{Source: Business Insider}