Ninety-two per cent of startups fail in their first three years. The top five reasons account for 87 per cent of the failures. Venture Builders can dramatically increase the survival rate of their venture portfolios by applying a methodology that addresses each one of these failure points.
Our experience is that industrialising failure this way can reduce the mortality rate in the first three years of a startup from 92 per cent to around 50 per cent.
Venture builders are a special kind of early stage investors. They actively build startups together with founders, rather than just investing in them. They are organisations dedicated to systematically producing new ventures, which they help grow and succeed.
Providing founders with mentorship, a clear funding avenue, and a wide range of services including software development, user design, marketing, and other business skills.
These are the five biggest reasons for startup failures and how venture builders can address them:
Building something nobody wants (36 per cent of the failures)
One of the first goals that a startup mentor in a venture builder must set for a new founder is to form a user panel, a group of 10-15 people who understand the problem that the entrepreneur is trying to solve. The true value of user feedback in startups is not well understood by many founders.
It is essential to validate whether the founder is addressing a real problem worth solving, one that customers feel like a genuine issue and one that is significant enough that they would pay to have it solved. A user panel provides frequent feedback to the founder and product team which is also crucial to getting the solution to that problem right.
Also Read: Roundup: Tuas Capital joins hands with The Hive to launch a venture builder fund for SEA startups
Hiring poorly (18 per cent of the failures)
Venture builders typically hire teams to support and develop new businesses alongside the founders. A venture builder in that sense is like a pool of professionals working on multiple startups at the same time. By getting staff supplied by the venture builder, founders know they are getting reliable staff.
It also reduces HR issues as such people are usually available quickly. The capabilities of the seconded staff are usually very well known, allowing a more accurate assessment of sources of progress. Additionally, for early stage startups getting resources this way is also more economical than hiring separately, because when the startups are facing a blockage, they can release the resources.
Failing to execute sales and marketing (13 per cent of the failures)
When it comes to marketing and sales, the main risk for a startup is the premature scaling of a company. It can be tempting for a startup to attempt to scale once it has created a Minimum Viable Product (MVP), rather than waiting until the product is right. Another mistake is to scale before it has a repeatable sales process in place. Mentoring by the venture builder should aim to help companies avoid these mistakes.
Not having the right cofounders (12 per cent of the failures)
New teams of co-founders have often not worked together before, which can be challenging in the high-pressure situation of a startup. The venture builder is actually a co-founder for the entrepreneur. As a result, the pressure to get a team of co-founders is alleviated. However, this set-up is better suited to the solo entrepreneur or a pair of founders than a fully formed team, which might already have many of the skills that the venture builder staff bring.
Chasing the investors, not the customers (Eight per cent of the failures)
It is easy for founders to spend more time seeking investment than working on the business. Venture builders typically provide a clear path for funding, subject to making progress, for the first couple of years. They can also assist with introductions beyond that. Companies that reach this stage should have expanded their capabilities enough to allow founders to seek investment.
The rest of the reasons only account for the remaining 13 per cent of the failures.
This research is based on Nova, a UK-based tech venture builder, launched in 2009. We partner with entrepreneurs to turn ideas into successful, scalable tech startups, in sectors including healthtech, fintech, and edutech.
Also Read: Venture Builders are a criminally underrated contributor to the startup economy
With no personal capital investment required, Nova provides entrepreneurs with mentorship, guidance, and funding. We invest at the pre-seed stage, and through our team of more than 20 startup mentors – plus over 100 designers, software engineers, and marketeers globally – we take startups from idea to product, to market.
We become an equity holding business partner in each of the startups we support. Our startup success rate is five times higher than the industry average. Additionally, our portfolio’s value has been growing at 83 per cent year on year and we have had four exits to date.
Nova is currently expanding to Asia. We are looking for working professionals in ASEAN to co-found startups with us. If you are interested in our venture building philosophy, please apply to our Southeast Asia programme.
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