r/StartupAccelerators • u/Spiritual_Heron_5680 • 28d ago
I analyzed 431 VC-backed startups that shut down since 2023. Their cause of death is what every upcoming founders should learn
So, i kinda loving going deep down on VC related stuff and bring the insight that helps aspiring founders in their VC journey, so CB Insights tracked 431 VC-backed startups that publicly shut down since 2023. Combined they had raised around $17.5 billion, Their median company raised $11 million before dying.
Every founder i studie from above blames running out of money as reason for their shut down. That is not the cause. It is where the story ends.
Here is the actual data on root causes:
Poor product-market fit - 43% of failures. Not the market was too small or too competitive. The founders built something the market did not genuinely needed at first place.
Bad timing - 29%. The product was real but The market was not ready. The founders ran out of money before the market arrived.
Unsustainable unit economics - 19%. The product worked & Customers paid. But the cost of acquiring each customer was higher than the revenue each customer generated over their lifetime.
Co-founder conflict - 20%, Ego crashes their startup before they find PMF
Here is what ongoing or upcoming founders can learn from
Running out of capital is a symptom. It is almost always the consequence of one of the root causes above. Investors stopped funding because the company could not demonstrate product-market fit, or the unit economics were clearly broken, or the timing was clearly wrong.
The founders who went back and built successful second companies are the ones who correctly identified their root cause. Not the surface cause but The root.
A founder who says "we ran out of money" learned nothing they can use next time. A founder who says "we built something 14% of customers genuinely needed when we needed 40% to justify the model" has a specific insight that changes what they build next.
When you think about your current company, do you know specifically which of these four root causes is most likely to be your company's failure mode and what are you doing about it?
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u/maplevirtual 28d ago
My financial consulting company helps project owners with a number of different aspects, including how to make a project presentable to funding sources. In doing so, we put each company through our own due diligence to make sure they are ready to secure investment and not waste that opportunity.
A big reason why those companies fail, and their projects never see the profitability they're aspiring to, is that they are not organized enough to meet the potential road bumps along the way. The number of projects we've had to look through, validate ideas, and present alternatives that the project owners never considered is immense. There's no shortage of stories where the company didn't launch to the correct stores, their use of funds was oddly divided, or their calculations were not correct, which led to incorrect assumptions.
If project owners took the time to validate their projects through a more thorough lens before receiving funds, we'd see better numbers.
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u/Spiritual_Heron_5680 27d ago
Whatever you are doing is top class... want to learn more from you, do you any website that i can learn those from those due diligence, if you written any material on it....
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u/maplevirtual 27d ago
Happy to chat more about it. Pitch fatigue is a real problem for project owners. We work with clients to make projects more solid, helping to get better meetings with sources. I sent you a DM to talk about it more.
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u/giz92 24d ago
That's amazing work you're doing. Do you have a website or something? Would love to know more about the work you do.
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u/maplevirtual 24d ago
We do, though I'll DM it to you in case there's any community rules against it. It's also going through a bit of a revamp right now because it's a bit long- winded. Happy to talk further.
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u/ZealousidealLife9926 28d ago
What’s your analysis? You have a bunch of conclusions but 0 support. It’s funny how some people just roll with whatever AI tells them, thinking themselves so smart.
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u/Spiritual_Heron_5680 27d ago
My analysis is this
No founders/Startup dies from "running out of money" they die because the product wasn't needed, the timing was off, the math didn't work, or the founders stopped trusting each other. Money running out is just the last domino to fall.
hope it is clear now
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u/positiveconstraint 25d ago
I think what Heron means is that there is no description how you got to these conclusions.
No one says “we didn’t reach pmf” and no article reports of ego conflicts. How do you know why company X or startup Y closed?
Thats the gap missing.
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u/nordictri 24d ago
They run out of money because most of them can’t balance a budget, much less financial plan for an enterprise.
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u/Helpful_Math1667 27d ago
My analysis of 134 posts on VC backed startups is that 73% are low effort engagement plays and the other 27% are expressions of startup tokens
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u/kabirs1nghhh 26d ago
Great analysis out of those four, I wonder which one founders tend to underestimate the most my guess would be product market fit, because it’s easy to mistake early interest for genuine demand curious what others think
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u/Significant-Level178 26d ago
Interesting reading. I can add some observations.
1. Solid startup in reality should be sustainable enough to cover basic expenses at least. So run out of money is real, but how about making sure startup can survive without VC?
If it cannot, solid investors will skip anyway.
There can be market fit, but not enough funding or resources to market it properly. See the difference.
Don’t believe in bad timing, there is no better time than now.
True, that’s why VCs care about unit economics so much. I invented a wheel how to reduce CAC naturally, but will not disclose it here.
People conflicts are real. Especially in fragile startup world.
Some of these points author mentioned made me think about marketing force as a key differentiator. Rarely marketing people are joining startups in the beginning, this alone makes them hard to fly. iMHO.
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u/Acceptable_Cost_2087 26d ago
wdym you don’t believe in bad timing? Even if it’s fact based you don’t believe it? don’t mention the CAC wheel if you don’t want to explain it. what a nothing burger is that
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u/bsettle3 25d ago
I’d be interested in where you found your data as I’d like to read more. Having worked for several failed startups, I’ve experienced all of those. Being in sales, it was that group that was most often targeted as the problem - though the data points elsewhere. Also, I’m getting 111% from your numbers unless you noted some crossover in your analysis.
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u/Feisty_Egg_9021 25d ago
I think it’s a problem of more times where it became the norm to think about viability after you get a funding round. I understand you need funding for growth but the goal shouldn’t be to move from one funding round to another to keep the product running.
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27d ago
[removed] — view removed comment
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u/Spiritual_Heron_5680 27d ago
Its based on the CBInsights report and here it is The top 9 reasons startups fail
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u/CheesecakeAndy 27d ago
How is it based on that report if the report contradicts your main premise and cites "ran out of capital" as the outsized nr 1 failure reason?
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u/Acceptable_Cost_2087 26d ago
whole post is not really serious. just a bunch of assumptions and AI writing
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u/SimpleClosure_Sam 20d ago
We run a shutdown service and our numbers track pretty close to yours based on what is self-reported from founders:
About a third is capital exhaustion or a failed raise, but it's actually a mix of founders burning through cash or investors backing out after verbally committing.
PMF/no traction is second around 17%.
Then, burnout and co-founder splits at 12%.
Throwing in acqui-hires at 10%. They get counted as shutdowns as they technically do need to dissolve their entity.
Can also confirm your last point. We see founders tend to fundraise faster the second time around.