The Ones Who Live…
Much talk over the years – and around Covid times particularly – was around zombie companies that carried on shuffling along, not growing, not folding and when this might come to land. Contrasted to that, was the other extreme – a significant rise in the US for start ups and those trying to back the next unicorn (my experience is that UK and Europe wasn’t as hot as the US market).
Against that backdrop it is interesting to see this FT article highlighting the increased number of start up failures which has (on US data) increased 60% over the last year. Part of the (seemingly illogical – but consistent) reason for this increase appears to be that they raised too much money and were encouraged to focus on growth and not to worry overly about costs and revenue. Having found themselves encouraged to grow at all costs (pun intended!) – they to seem to have been unexpectedly caught by their backers, who want them to change strategy and focus on cost control and profits. With a changing environment on interest rates and the ability to raise further cash by these companies, this has lead to some start ups simply just running out of cash and being unable to raise further finance and therefore having to make the decision to close.
So, what are the lessons? Probably the usual old hat cliches:
- Cash is king – businesses go bust not because they don’t make profits but because they run out of cash
- Make sure you know why you are raising funds and what you are going to use them for
- Make sure you execute your revenue plan well
- Choose your VC backer with one eye on whether they have capacity and willingness to fund the next round
- Be lucky…..
Whether we will see this increasing as more monies flow in to AI, and whether AI will deliver what many proclaim it will or whether this might be a new dot com boom and bust, we will have to wait and see.
Subcribe to news and views“an abnormally high number of companies raised an abnormally large amount of money during 2021-2022”
https://www.ft.com/content/2808ad4c-783f-4475-bcda-bddc0299095e