Michael Peres

An “Extinction Event” of Startups

The survey found that four out of five startups are at risk of failure in 2023, with less than 12 months of runway left. This means they have enough capital to sustain their operations, without generating revenue. The survey categorized respondents by the level of funding for their startup, with 48% of respondents stating they raised pre-seed funding, 32% raised seed funding, and 16% had not started raising funds yet. If 80% of early-stage startups go extinct, it will be the largest extinction event since the global financial system collapsed in 2008.

VC Industry Trends

In a tweet following January Ventures’ findings, Mark Suster, partner of Los Angeles-based venture capital firm Upfront Ventures, agreed with the survey’s predictions. He estimated that half of the 5,000 early-stage startups his company has funded over the past four years are at risk of going out of business. Suster said that excess capital has kept the number of startup failures artificially low for the past seven years. In the same Twitter thread, Tom Loverro, a venture capitalist at Silicon Valley-based investment firm IVP, predicted a “mass extinction event” for early- and mid-stage startups in late 2023 and 2024 that will surpass the epic collapse in 2008.

The total global venture capital funding dropped 32% in 2022, decreasing to below $300B from the $513B total in 2021, according to GlobalData. The data also shows a decrease in the number of seed funding rounds for early-stage ventures, with bigger deal sizes for growth stage deals. In Q4, there was a 24% drop in deal volume for growth stage deals.

Final Thoughts

The predictions of a “mass extinction event” for early- and mid-stage startups in 2023 is alarming. Startups need to focus on their runway and explore alternative funding options to sustain their operations. Venture capitalists also need to consider the impact of their actions on startups and take a long-term view on funding. The VC industry needs to rethink its priorities, particularly during tough times, to ensure the survival of the startup ecosystem.

Entrepreneurship is fraught with risks, uncertainty, and emotional turbulence. Business failure is often viewed as a scary, unpredictable, and potentially catastrophic event. Nevertheless, successful entrepreneurs are no strangers to failure. Many have experienced setbacks, bad decisions, or flawed business plans before achieving success. In the end, the beauty of failure is the opportunity it provides to learn, grow, and pivot towards success. As the late Aaliyah said, “If at first, you don’t succeed, dust yourself off and try again.”

Here are six ways to learn and pivot from an entrepreneurial journey gone awry:

Reevaluate Your Business Plan

One of the first steps after experiencing failure is to reevaluate your business plan. Consider pivoting if necessary. Was your product or service not ready for the market? What feedback did you receive? Identify what went wrong and why, then create actionable takeaways you can use in the future. Instead of wallowing in defeat, take constructive steps towards understanding where things went awry. Self-reflection should be part of your quarterly, annual, or semi-annual review.

Set New, Attainable Goals

Setting goals that are smart and attainable is critical. Take a look at what went wrong with the project that failed and understand why it failed. Sometimes our failures are simply viewed as such because of the goals we set. Setting unrealistic goals can set us up for failure. Instead, set specific, measurable, achievable, relevant, and time-bound goals (SMART goals). For example, if your goal is to achieve 1,000 users, start by collecting enough emails or contact information from your promoted post, build a following or brand awareness that can get you to 1,000 users more easily.

Learn a Valuable Lesson

Failure can be a valuable lesson. After experiencing a setback, take a moment to consider what you can learn from the situation. Did you trust someone without fully vetting them? Did you not have enough money saved for your venture? It is okay to make mistakes, and you can become better because of them. Remember not to make the same mistakes as you move on.

Take on New Skills That Will Take You Farther

Sometimes failure happens because we lack the right skills, or we need to fine-tune our existing skills. Once you’ve realized the areas in which you need to improve or sharpen, use the time to gain more knowledge. Learning new skills only broadens your horizons and can lead to unexpected opportunities.

Discover Your True Intentions and Purpose

Failure has a way of helping us prioritize what truly matters. Take a moment to reflect on what motivates you. Is it chasing money, helping others, serving your community, or something else entirely? Your true purpose may be hidden behind the mask of what you think a successful business looks like.

Encourage Others with Your Story

Sharing your failure story can be overwhelming and anxiety-inducing, but it can also inspire and bring hope to someone struggling with similar issues. The vulnerable moments are where we can learn the most about ourselves and our journeys.

Final Thoughts

As an entrepreneur, taking risks is an integral part of your journey. It’s important to understand that failure is not the end, but an opportunity to learn, pivot, and grow. Don’t be afraid to reevaluate your business plan, set new attainable goals, learn valuable lessons, take on new skills, discover your true intentions and purpose, and encourage others with your story. Remember, failure is what defines you as a risk-taking entrepreneur.