There is an often thrown number that only 1 in 10 Venture Capital
funded start-ups succeed. Is there any credible source to this claim?
Or a credible source that can refute it? Also how many companies are
started in the USA every year? How many of them "succeed"?

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Request for Question Clarification by pafalafa-ga on 28 Feb 2006 12:33 PST

Here's on reputable source at least that says that failure rates of
new businesses are vastly overestimated, and that the reality is that
about half of all new businesses survive  (see Figure 1):


http://www.sba.gov/advo/stats/bh_sbe03.pdf
Redefining Business Success:
Distinguishing Between Closure and Failure



Does that help at all?


pafalafa-ga

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Clarification of Question by iamvela-ga on 01 Mar 2006 12:04 PST

I wish it did. My interest is in Venture backed success rates as
opposed to individual small businesses. The CBO data in this article
excludes C Corporations which is the profile of 100% of venture
companies. So in effect it excludes the very demographic that I am
looking for. :(

But thanks for trying, if I can get an answer today (or soon enough)
there's definitely an additional tip for the right answer.

Hope thats more motivation... again thanks for the effort.

Here are a list of websites that will tell you that 90% of new start
ups fail, but they also offer suggestions on how you can succeed.  So,
read and SUCCEED!



http://www.paulgraham.com/hiring.html
http://www.paulgraham.com/start.html
http://www.businessballs.com/thirdworldsmallbusinessstartups.htm
http://cpd.ogi.edu/mst/capstone/17Mistakes.htm

Margaret
www.jobsearchtop10.com

Just FYI ... that 90% figure has been bandied around for nearly 20
years, and it is simply an urban legend.  Someone probably made the
comment once and it has been quoted ever since, but there is no hard
evidence suggesting that figure.

Many businesses that "fail" within the first one, or five years really
never got started in the first place. Others may have succeeded for
some time and then got bought out.

The definition of "failure" is important.   For instance:  Would you
consider Netscape a success or failure?   Netscape essentially created
the doctom era, employed thousands of people and was arguably the
first IPO of the dotcom boom.  On the other hand, I don't beleive they
ever made a profit (the browser was essentialluy free) and were split
up had their parts acquired by AOL and Sun.

Also the definition of "start up" is equally as vague and important. 
There are a great deal of incorporations every year done with the
intent of starting  a new venture, but that venture never really gets
started (lack of funding, lack of interest etc).  To count these
on-paper-only incorporations as failures certainly skews the stats
too.

So, any data you find on this subject will be a little fuzzy unless
you want to know more specifically "what percentage of companies
incorporated are still operating after 5 years".

Just my two cents

Hi

this is a very interesting question. I have just been writing an
article on Business Angels for South Eastern Europe and was looking
for the same information on Europe in general.
I accidently came upon an article on that. It is written in Bulgarian
by a group of experts. They did not cite the source of the graph they
used, by generally they talk about the following numbers on USA:

2.5 mln enterpreneurs with great ideas
only 500 000 business plans (1 in each 5)
5 to 15 000 receive some form of financing (1 in 25)
3 to 5 000 get venture capital financing  (1 in 174)
only 800 IPOs (only 1 in 833 get to IPO => are really successful)

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.


EVCA - the Euro vc association provides The Risk Profiles of Private
Equity and Venture Capital

In this paper, Tom Weidig and Pierre-Yves Mathonet draw the
conclusions that private equity is a risky asset, but private equity
investments are not necessarily so.  They say that every type of
private equity investment vehicle has a different risk profile and
that diversification is of utmost importance in private equity,
because it significantly reduces risk. As such, a direct investment
has a 30% probability of total capital loss; a fund (or a portfolio of
direct investments) has a very small probability of total loss and a
fund-of-funds (or a portfolio of funds) has a small probability of any
capital loss.
visit the paper itself here
:	http://papers.ssrn.com/sol3/papers.cfm?abstract_id=495482


also - have a look at the results of this search
://www.google.bg/search?hl=bg&q=loss+site%3Aevca.com&meta=

An interesting perspective can also be gained here:
Colin Mason from the Hunter Centre of Entrepreneurship in Strathclyde,
Scotland, has done a study on angel investment returns  . The key
findings are the following: 127 angels responded/372 investments
made/51 angels had exits, 128 exits in total (90% occurred between
1985 and 1996).
-	34% of investments involved total loss;
-	6% involved partial loss;
-	8% broke even;
-	7% had return of under 10%;
-	7% had a return of 10-24%;
-	13% had a return of 25-49%;
-	25% had a return of over 50%.

In comparison with early stage venture capital funds:
-	Business angels have significantly fewer investments that lose money
(40% vs. 64%)
-	Business angels have significantly more investments, which break
even or generate low returns (24% vs. 7%)
-	Business angels have a similar proportion of very successful
investments (23% vs. 21%)