So Carta has some interesting new data from all of its start-ups from The Class of 2018 here.
Every start-up dataset is a bit different. Some are broader than Carta, some narrower, but Carta is a good proxy for typical tech start-ups that raise a seed round.
And what happens after that seed round?
- Within 7 years, 62% of start-ups shut down.
- But of the ones that raise seed capital? It’s not clear, but it might be as low as 30% that fail within 7 years.
- 15% are able to get to Series B
- 1.1% raise a round at a $1B or high valuation
This is roughly my experience as well. So many talk about how 99% of start-ups fail, but that’s too broad, even if it’s true. The ones that raise high quality seed capital quite often do not fail. In the SaaStr Fund portfolio, I started off with a 0% failure rate. Now it’s about 15% or so. Loss rates are lower than many realize once you get to institutional capital, even seed stage institutional capital. FBOW. Carta’s data suggests 30%-35% of start-ups that are able to raise a seed round fail in 7 years. That sounds about right to me. Many seed stage VCs model around 30%-40% of their portfolio failing, but losing only about 20% of so of the fund in those deals.
Now the 1.3% becoming unicorns actually sounds a smige high to me. And also, I think to win in VC, you have to do better than this. You need at least a unicorn a year to win big in VC in general, and at least one per fund for even a small seed fund. So even a < $100m VC fund needs a unicorn per fund. But overall, it doesn’t seem like 1% of all seed funded start-ups truly make it all the way to a $1B valuation. Carta says they do, though 😉
In any event, these metrics are very useful and directionally correct. The funnel narrows sharply over time. Raising a Series A is twice as hard as a seed round — and it just gets harder from there.
Each round after Series A is at least twice as hard as the last. That might be the best take-away of all from the data.
