The Little Start Ups That Couldn’t

In entrepreneurial culture, success dominates the airwaves. A brand new company can succeed in many ways: attracting press, landing influential seed investors, winning contests, and through stories of individual users. This culture is so strong, that the second act of an entrepreneur is often seeding additional entrepreneurs.

But the success of a new company quickly fades into the mundane, and sooner or later the metrics for success become far harder to achieve.  Most new companies fail, and there is an iceberg of unsuccessful companies beneath the media waterline that reflects on those who have made it.  While usually kept quiet — failure has few owners — there is additional data emerging on exactly how hard it is to build a successful start up company.

Exhibit one is Y Combinator, perhaps the most competitive accelerator program in the valley. And they are not shy about their successes: 37 of the over 500 companies that have gone through the program are now individually worth $40 million or more, including mega-successes like Dropbox and AirBnB. That’s pretty impressive.  But it is the view above the surface.  For as this article suggests, the other roughly 90% of Y Combinator companies are unlikely to provide investor returns above the S&P (up over 30% in the last five years).

Another view is an insightful post of TechCrunch Disrupt conference, a similar shining star in the entrepreneurs landscape. The author tracked down the participants in the 2011 conference to see how they were faring less than two years later:

Out of the original freshman class of 32 startups, 23 of them (71 percent) are either dead or dying. That’s an overwhelming majority of promising outfits that bombed, gathering tens of millions of dollars in investments along the way…

There is no shame in start up failure — indeed for many entrepreneurs, it is the initial difficulties that inform a later success.  But these articles are a reminder that a large part of entrepreneurial culture remains invisible under the waterline.  Admire the view, but keep an eye out for danger.