I read several years ago that the average startup restaurant lasts only about a year.\u00a0 Ouch! ![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2019\/02\/Borrowing-money.jpg\")
Here I am a professional investor in early-stage companies, and I attempt to find those with the greatest chance of success and growth in value over time.\u00a0 Restaurant startups would not top my list.<\/p>\n
Data does not lie.<\/strong><\/p>\n We have years of real data to call upon: data that impacts both investors and entrepreneurs. There are two reliable sources of reasonably recent data for us to examine.\u00a0 The Angel Capital Association recently published a study contributed to by several of my friends quoting that seventy percent of investments made by angel investors to date return less than the amount invested – upon a sale or closing of the business \u2013 the great majority of these outright losses as businesses die.<\/p>\n Fortune Magazine and Harvard studies<\/strong><\/p>\n Attempting to get to the number of real failures for all startups, not just those with angel group investments, Fortune Magazine published an article claiming that 90% of these startups do fail.\u00a0\u00a0 The U.S. Census Bureau reports that 400,000 new businesses are started every year in the USA, but 470,000 are dying. What does THAT mean?<\/p>\n Even more credible statistics<\/strong><\/p>\n [Email readers, continue here…]\u00a0<\/em><\/span> \u00a0John Chambers, former CEO of Cisco, stated that \u201cMore than one-third of businesses today will not survive the next ten years.\u201d\u00a0 And this includes all businesses, not just startups.\u00a0 Harvard University recently published a study that shows three of every four venture-backed firms fail.\u00a0 And the U.S. Bureau of Labor Statistics states that 50% of all businesses survive five years or more, and about one-third survive ten years or more. Remember that this includes the Fortune 500\u2026<\/p>\n Here comes the SBA and its analysis.<\/strong><\/p>\n The Small Business Administration (SBA) claims that 66% of new businesses survive their first two years (and that 50% fail during their first year in business.)\u00a0 Although these are not parallel studies or similar statistics, most seem to refute Fortune\u2019s claim that 90% of all startups fail.<\/p>\n How about the early-stage investors?<\/strong><\/p>\n You might be interested in this data as viewed from the early-stage investor\u2019s viewpoint.\u00a0 Angel investors hold their average investment for 4.5 years before a liquidity event (positive or negative.)\u00a0 That buries the real data that \u2013 if you strip out the short-term company failures or investor losses, the number of average years to a positive return is between eight and nine.\u00a0 And that is after investment, not after a company\u2019s start-up.\u00a0 Would you be willing to invest a significant portion of your wealth in \u201cdeals\u201d that are completely illiquid for almost a decade on average?<\/p>\n But there is a pay-off for early-stage investors.<\/strong><\/p>\n And yet, these same early-stage investors \u2013 if they diversify into enough companies and wait long enough \u2013 see an average annual return on their investments of 22%.\u00a0 Way above market investment returns. But those returns come from the 3% – yes only 3% – of their investments that pay out more than ten times the amount of the original investment.<\/p>\n Starting up a new company is risky. Investing in a young company is risky.\u00a0 But the potential returns over time for investors makes this an attractive diversification.\u00a0 And we hear of successes like the over 1,000 unicorn companies that make us all want to jump in and try our luck \u2013 even if the odds are well below 3% for ultimate success.<\/p>\n We are a cadre of optimists and that is unlikely to change. <\/strong><\/p>\n Entrepreneurs will always start new enterprises. Angel investors will always finance many of them.\u00a0 We all look forward to the lottery win, and hope to be well-rewarded over time.<\/p>\n","protected":false},"excerpt":{"rendered":" Well, the numbers don\u2019t lie, even if there are several sources of these statistics.\u00a0 Starting a company is HARD \u2013 in so many ways.\u00a0 And risky too. Let\u2019s start with a restaurant -not our thing. But\u2026 I read several years … Continue reading ![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2021\/12\/Digging-gold-300x265.jpg\")
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