Entrepreneurial hardships 3/4 VC support start-up company bleak ending

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Tencent Science and Technology (Dongyun) Beijing time September 24 news, foreign media recently published an article said, according to a new research report, on the surface of the pioneering company behind the scenery, in fact, in the U.S. market by venture capital-backed start-up companies about Three-fourths ultimately unable to return capital to investors. The article points out that venture capitalists "bury their bodies very quietly" because "they emphasize success, but they don't talk about failure at all."

The following is the full text of this article:

In the eyes of outsiders, things seem so simple. A start-up entrepreneur with some sort of hot technology gets a venture capital financing and then becomes a billionaire at 20.

But there is now evidence that venture capital-backed start-ups are far more likely to fail than the data that the industry typically cites. Shikhar Ghosh, a senior lecturer at Harvard Business School, recently published a study saying that about three-fourths of venture capital-backed start-ups in the U.S. market are ultimately unable to return capital to investors.

Comparing this data with the data that venture capitalists say, you'll see the difference. It is generally said that only three or four of the 10 start-ups will be completely closed down, while another three or four will return the original investment to investors, and one or two will bring significant rewards to venture capitalists. According to estimates by the National Venture Capital Association (VENTURE), only 25% to 30% of venture capital support startups will fail.

Ghosh the difference in part due to the lack of deep research into closed start-ups. "We just saw the brighter side of the entrepreneurial process," he said. "he said.

His findings are based on data from more than 2000 companies that had acquired venture capital between 2004 and 2010, usually at least 1 million dollars. In addition, he has combed the portfolio of venture capital firms and exchanged ideas with practitioners of start-up companies. The results were similar when he examined data from companies that had acquired venture capital between 2000 and 2010.

Venture capitalists "bury their bodies very quietly", says Ghosh, "they emphasize success, but they don't talk about failure at all." ”

But even failure, there are different definitions. If failure means clearing all the assets and investors losing all the money, 30% to 40% of startups are expected to fail, he said, and if the failure is defined as a failure to deliver the expected return on investment--for example, a specific revenue growth rate, or a cash flow to achieve a break-even date-- According to Ghosh's research, more than 95% of startups are failing.

But failure is often more difficult for other entrepreneurs than entrepreneurs who raise risky capital, because they are losing money borrowed from their credit cards or borrowed from relatives and friends, the company said at the same time.

"It's one of the most unacceptable things to do when you're building a company in a self-help way that doesn't give you anything in return but consumes all your savings." Toby Stuart Toby Stuart, a professor at the University of California, Berkeley, at the Haas Business School. He points out that venture capitalists who make risky investments expect some of them to fail, while those who raise risky capital often get some rewards.

For example, Daniel Dreymann, founder of Goodmail Bae, created a company designed to provide a service that minimizes spam. In 2004, he moved from Iraq to the United States, where he founded the company in California State Mountain View. The company then raised 45 million of billions of dollars from venture capital firms such as DCM, emergence and Bessemer Venture, and with AOL, Comcast, CMCSA and Verizon Communications and other companies to establish a cooperative relationship. At the height of its 2010 career, the company had about 40 employees.

But in early 2010, the partnership between the company and Yahoo broke down, and then began to get into trouble, said de Lehman. A Yahoo spokeswoman declined to comment. At the beginning of 2011, a Fortune 500 company tried to buy a goodmail deal that eventually came to nothing. It was not long before he handed the key of the company to a liquidator.

All of Goodmail's investors have suffered "significant losses," he said, trying his best to help the liquidator return as much money as possible to investors. "Those people have trusted me and supported me. ”

For a failed entrepreneur, no matter how well he manages his company, and whatever rapport he has had with previous investors, he once again persuaded us venture capitalists to support their future start-ups, Charles Horowith, director of the Stanford University Center for Entrepreneurship Research. Charles Holloway) said.

But David Cowan, the venture capital firm Bessemer Venture, insists that the 20-year venture capitalist is an "angel" investor who has invested in Mowingo, the new start-up company of Lehman, The company has developed a mobile app that helps shoppers create their own personal shopping malls and track their favorite stores.

"People are embarrassed by talking about their failures, but the fact is that if you don't go through a lot of failure, you can't do it right because it means you're not investing in a risky business." "said Ke Wan. "I think failure is an option for entrepreneurs, and if you believe that, you'll find a way to make it happen, even if you hit the wall with your head." ”

Overall, in the first four years after the start-up, companies without venture capital have been shut down more frequently than venture-capital-backed companies, typically because if their business model does not work, there will not be enough capital to continue to operate, Ghosh said. and venture-capital-backed companies tend to collapse after four years, after investors stop investing more capital, he said.

According to a report by the U.S. Bureau of Labor Statistics (BLS) and Ewing Marion Kauffman Foundation, a non-profit organization that encourages entrepreneurship, about 60% of all startups will survive until the third year, and around 35% will survive until the tenth year. These two reports only consider the limited liability companies that have employees. For startups that failed to survive, the reason for their failure may not be to fail, but to be bought, or the founder to move to other new projects, and at the same time the weakening companies are counted as survivors.

According to Dow Jones VENTURESOURC, a market research firm under News Corp, 84% of American startups initially backed by venture capital between 2006 and 2011 are now closed-stock companies and are operating independently; 11% have been acquired, or IPOs (IPO) deals; 4% went bankrupt. In addition, less than 1% are currently in the IPO registration process.