Technology-boom startups suffer high casualty rate
Wall Street Journal reports (subscription required) that:
According to new data from VentureOne, about 22% of the 1,842 fledgling companies that received an initial round of funding in 1999 have closed their doors, compared with an average of 15% for companies launched over the previous seven years. Start-ups initially funded in 2000 already have a casualty rate of 18%.
The amount invested in start-ups since 1999 that have failed totals a whopping $15.3 billion, data from the San Francisco-based venture research group show.
The fact that boom-era start-ups are failing at a faster-than-normal rate should come as no surprise. The number of new companies that received initial rounds of financing from venture capitalists grew steadily throughout the early 1990s. But, in concert with the dot-com frenzy, such investments nearly doubled between 1998 and 1999. In 2000, the number of initial financing rounds surged an additional 44% as venture capitalists continued to pour money into new ventures.
"The market simply couldn't support this glut of companies," says John Gabbert, vice president of world-wide research at VentureOne. "The pool of early stage start-ups achieved critical mass just as the liquidity markets dried up, with the result that a high percentage of these companies have folded."