Weekly Business Insights from Top Ten Business Magazines | Week 305 | Entrepreneurship | 2

Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Week 305 | July 14-20, 2023

Startup Failures Have Doubled Over the Last 12 Months. 

There Are Ways to Ensure Yours Won’t Suffer the Same Fate.  Down rounds are better than going out of business.

By Sam Blum | Inc Magazine | July 18, 2023

Listen to the Extractive Summary of the Article

Startups and new businesses have always been linked to failure: Rates of failure vary, but historically, at least, around 90 percent of firms eventually go belly up, according to data by Startup Genome, a San Francisco-based research organization that studies the global startup ecosystem.  This year, however, the landscape is looking especially grim for early-stage startups.

The upswing in failure is attributable to the funding climate of 2021, when money going to new startups soared, hitting $329 billion in the U.S., alone, Pitchbook data shows. Startups that prospered during the boom are now burning through their final cash reserves, as VCs started to pick winners — and losers — amid the crowded field of that year.  Startup founders worried about their companies biting the dust, amid as a looming correction in the funding landscape, still have options. Two among them stand to increase the survival potential for businesses: raising money at a lower valuation, and bridge funding.

Step back to move forward.  A down round — or raising money at a lower valuation — might be your next best option when you’re in survival mode. Naturally, it can sting — particularly in an area where large valuations may indicate future promise and perhaps caress a founder’s ego.  

Build a bridge to somewhere.  Bridge rounds — fundraising rounds that occur between series financing — can give a startup greater leeway before more consequential rounds. Moreover, when you receive a bridge investment, you should have a clearly defined use for it that can help you reach a more pivotal funding round. Have some sort of metric, or valuation creation milestone, that [a company is] going to hit with this money.  That way you can feel confident that you can go out and raise that next round.  In this environment, founders should primarily focus on the piecemeal strategy of building a bridge. 

A well-defined strategy will be crucial in convincing investors.   The market has now changed, we are seeing legitimate diligence happening again, which means that it’s a lot more work to raise capital.

3 key takeaways from the article

1. Startups and new businesses have always been linked to failure: Rates of failure vary, but historically, at least, around 90 percent of firms eventually go belly up, according to data by Startup Genome, a San Francisco-based research organization that studies the global startup ecosystem.  This year, however, the landscape is looking especially grim for early-stage startups.
2. The upswing in failure is attributable to the funding climate of 2021, when money going to new startups soared, hitting $329 billion in the U.S. Startups that prospered during the boom are now burning through their final cash reserves, as VCs started to pick winners — and losers — amid the crowded field of that year.  Startup founders worried about their companies biting the dust, amid as a looming correction in the funding landscape. 
3. Two options can increase the survival potential for businesses: raising money at a lower valuation, and bridge funding.

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Topics:  Startups, Growth, Funding, Venture Capitalists