A List of Interesting Statistical Facts — Inspired by Posts from My Telegram Channel . The results of various studies described below once changed my perspective on venture capital and the startup environment. I hope these observations will be useful for you as well, particularly for those who view the capital scene from the founders' side.
1. The Startup Industry is Disappearing Amid Globalization
In 1985, young companies under two years old made up 13% of all businesses in the U.S., while by 2014, their share dropped to just 8%. More importantly, the percentage of private sector employees working for these young companies fell by almost half during the same period.
Each year, it becomes increasingly difficult to compete for talent against huge corporations. Quartz this phenomenon in more detail. I understand that the statistics are only for the 'most free' environments, but I am convinced that this problem affects every capitalist country to some extent.
2. Half of All Venture Investments Do Not Pay Off
Moreover, only 6% of all deals yield 60% of the total returns, Ben Evans from Andreessen Horowitz. The topic of in cash flows doesn't end here. For instance, 1.2% of all venture deals 25% of all venture dollars in 2018.
Why does this matter? Because founders need to think like investors. And not just when planning to raise funds, but also when they first consider implementing an idea. Although it is very challenging to think in these terms — only the best investment funds globally generate 100 times returns on the best companies.
Dreaming is certainly not harmful; however, a more or less acceptable benchmark is a 20% IRR or three times returns. Look at growth rates, read up on venture capitalists' startup valuation principles. Is the required return feasible for your project?
3. The Volume and Number of Seed Investments Are Decreasing
In 2013, seed-stage deals accounted for 36% of the total venture capital in the U.S., while by 2018, this figure up to 25%, although the median seed funding size as a percentage has grown more than in other rounds. There is also data from Crunchbase indicating that the number of investments not exceeding $1 million has decreased over the past five years. nearly by half.
Today, it is much more difficult to attract an investor's attention to a project at an early stage. The bigger — the more, the smaller – the less, as Marx bequeathed.
4. The interval between funding rounds is two years
This fact is based on venture deal data from 18 years since the early 2000s. Over the years, a steady trend in capital attraction rates has been observed. Fast-growing unicorns are the exception. Knowing this, think about the budget and be more cautious with spending, especially if you have already closed a round of early-stage funding.
Because burning through existing funds is the second most common for startup failures. And it's not just about a loss-making business spending all its available funds. It's about cases where projects with successful business models shut down because the founders became overly enthusiastic about growth and hoped for quick new funding.
5. Acquisition is the most likely path to success
97% of exits through M&A, and only 3% through IPOs. An exit is very important, as it is at this moment that you, your team, and your investors are paid. Venture capitalists live for exits, yet founders continue to dream of unicorns while avoiding thoughts of selling their creation.
But one day it might be too late. Many entrepreneurs miss the opportunity to take the money, although timely decisions to sell the business can be the best decision. By the way, most exits at early stages: 25% at seed stage, 44% before round B.
6. Lack of market demand is the primary reason for startup failure
Analysts from CB Insights surveyed founders of closed startups and a list of the 20 most common reasons for failure of newly established companies. I recommend getting acquainted with all of them, but here I will mention the main one — lack of market demand.
Entrepreneurs often tackle problems that interest them to solve, rather than those that serve market needs. Love your product, don't create problems, test hypotheses. Your empirical experience is not statistics; only numbers can be objective. At this point, I must share on SaaS business from Stripe.
7. The B2C2B segment is bigger than it seems
For every dollar companies spend on purchasing IT solutions, an additional 40 cents go to direct acquisitions by senior management. The point is that B2B SaaS can be targeted not only at corporate sales but also at a separate B2C2B (business-to-consumer-to-business) segment.
And this software procurement model is typical for most key departments within companies. Details can be found in by venture capitalist Tomas Tunguz from Redpoint, "Why bottoms up selling is a fundamental shift in SaaS."
8. A lower price is a poor competitive advantage
Many believe that if they can offer a lower price, success will follow. But the era of bargain markets is long gone. Customer service is the cornerstone of any product, and there are many well-reasoned articles that confirm this thesis. Moreover, while you are trying to lower the price, your competitor might raise it, thus increasing their revenue.
There is a great example from ESPN, which lost 13 million of its subscribers after raising the price by 54%. The paradox here is that ESPN's revenue also increased, almost by the same 54%. Maybe you should raise the price to start earning more? By the way, higher income is one of the best competitive advantages.
9. The Pareto principle applies to advertising revenue
According to the results of from the analytics company Soomla, 20% of users view 40% of ads and account for 80% of the advertising revenue structure. This conclusion is based on over two billion views across 25 apps operating in more than 200 countries.
Among two billion Facebook users, those from the USA and Canada constitute only 11.5%, yet they bring in 48.7% of the revenue. The ARPU in these countries is $21.20, while in Asia, it is only $2.27. This means it is better to have one user from North America than nine from India. Or vice versa — it all depends on the costs of acquiring them.
10. There are only a few thousand iOS applications in the millionaires' club
The App Store has over two million available apps, and only 2857 of them generate more than $1 million a year, according to App Annie. This means that on the Apple showcase, the probability of achieving great success is approximately 0.3%.We also do not know how many companies stand behind these applications, but it is evident that there are even fewer of them.
I want to emphasize that we are talking about annual revenue, not net profit. This means that some of these applications may be unprofitable for their owners. Under these circumstances, the bright stories of idea implementation and the power of Apple's viral machine seem more like luck than a planned outcome.
11. Age increases the probability of success.
In calculated that the chance of creating a successful company at age 40 is twice as high as at 25. Moreover, the average age of 2.7 million founders in their dataset is 41.9 years. However, significant success often to young entrepreneurs.
The older you get, the more cautiously you make decisions, but the more decisively you reject risky ideas. In other words, the older you are, the lower your entrepreneurial ambitions, but the higher your chances of success. This thesis is also supported by another independent from Nexit Ventures.
12. You don’t need a co-founder.
Contrary to the common belief that luck more frequently follows organizations with multiple co-founders, the overwhelming majority of startups that have exited had one founder, according to Crunchbase.
However Specifically for unicorns, it tells us that only 20% of them were founded by one person. But should we take this figure into account when every billion-dollar company is a unique and one-of-a-kind story? Moreover, a larger statistical sample is always more accurate. The myth is debunked.
13. Everything is in your hands...
More than half of billion-dollar companies in the U.S. by immigrants. This means that no matter where you come from, you have a chance of success. Everything is in your hands... you must want to buy. Investors want a stake. Customers want a product. The main thing is to sell..
40% of European AI startups actually use this technology but attract 15% more money. The main thing is revenue.. 83% of companies that went public in 2018 , and the value of unprofitable companies increases more than that of profitable ones. Money is where the risks are, and risks are where venture capital is. Sell. Revenue. Capital.
Thank you all for your attention. Special thanks to the investment director of Da Vinci Capital for the assistance in editing this material. If you are interested in similar discussions that do not fit into the format of a full-fledged article, then subscribe to .
Source: habr.com
