Is it true that 90% of startups fail?

Quick answer and what this article will and will not cover

Short takeaway: the statement that 90% of startups fail is useful as a caution but is not a single, authoritative statistic you can apply everywhere; survival rates change with definition, timeframe, and funding context, and the phrase mostly reflects the high risk people see in early-stage investing while compressing several different measures into one memorable number. For readers wondering how to start investing in startups, treat the 90% figure as a heuristic rather than a literal probability.

This guide will use public datasets and industry analyses to explain why different sources show different rates and what that means for individual investors. It compares national business survival statistics with venture capital data, summarizes common founder postmortems on causes of failure, and gives practical screening and sizing steps for newcomers.

Who this is for: everyday readers with basic money understanding who want a calm, evidence-based view of startup risk and a clear path to learn how to start investing in startups. This is educational material, not investment advice or a promise of returns.

What this guide will not do: provide private, behind-paywall portfolio returns, recommend specific providers, or promise outcomes. It explains decision factors you can use to evaluate opportunities and points to primary public sources when relevant.

What people mean by ‘startup’ and by ‘failure’

Language matters. National statistics often use terms like new employer firms to mean business entities that hire staff and register with government agencies, while the venture world commonly labels high-growth, investor-backed companies as startups. These groups overlap but are not the same, and confusing them leads to mismatched comparisons. See our business category for related posts and context.

Official statistics report survival over fixed windows such as one, three, or five years; changing the window shifts the apparent failure rate. For example, many national datasets track how many new employer firms remain active after five years, which gives a different picture than counting how many venture-backed companies ever reach a profitable exit.

Failure also has multiple meanings. A company can close operations, file bankruptcy, or simply fail to return money to investors. Those are distinct outcomes. When venture investors say a company failed, they often mean it did not return capital to the fund, which is different from a small business closing while the owners transition to another activity.

When you read reports, check the subject, the timeframe, and the outcome measured. National survival figures and VC outcome statistics are answering different questions, so they should not be treated as interchangeable.

Short answer: where the 90% claim comes from and why it is misleading

The 90% shorthand likely grew from a mix of cultural shorthand, selective anecdotes, and the high visible rate of struggling or closed startups combined with venture portfolios that include many non‑winners; it is memorable but compresses several different datasets and contexts into one number. There is no single authoritative dataset showing exactly 90% failure across all startups and contexts, and national survival trends do not match that rounded claim in most economies.

Official national analyses show different patterns. In many OECD countries, roughly half of new employer businesses still operate after five years, which is a materially different message than a blanket 90% failure statement, and that difference matters when thinking about small businesses versus venture-scale startups; see the OECD Entrepreneurship at a Glance summary for context OECD Entrepreneurship at a Glance.

The venture-backed world adds another layer. Venture portfolios are skewed so that only a small share of companies produce outsized returns, which makes it common for many individual portfolio companies not to return capital even while the fund posts a net positive return; industry summaries such as the PitchBook-NVCA venture reports explain this skewed outcome pattern PitchBook-NVCA Venture Monitor (see PitchBook analysis).

National statistics versus venture-backed data: what each tells us

What national datasets measure: government sources like the U.S. Business Employment Dynamics and OECD reports track business births and survivals among registered employer firms over time, reporting how many firms remain active after given windows. These statistics are useful to understand the broad health and churn of new businesses in an economy and commonly show that about half of new employer firms survive to the five-year mark in many countries BLS Business Employment Dynamics.

What venture datasets measure: VC industry data focus on companies that receive institutional or angel-backed capital and then track financing rounds, valuations, exits, and fund returns. Those datasets capture investment outcomes, not the total picture of all new businesses, and they highlight the concentration of returns among a few outsized exits PitchBook-NVCA Venture Monitor.

Why they look different: national survival rates include many small, lifestyle, and local businesses that never sought venture funding, while VC data cover a narrower set of high-growth attempts. Mixing the two without attention to definitions causes confusion, so pick the dataset that matches the question you are asking.

Why venture-backed returns are skewed and what that implies for failure counts

Venture capital returns tend to follow a power-law or heavy-tail distribution where a small number of companies generate the majority of return dollars while many others produce little or nothing. This skew means that counting the share of companies that do not return investor capital is framing one part of the story without describing how funds realize gains from winners.

For an investor, the implication is clear: individual deal failure is common, but that risk is intrinsic to a strategy that seeks rare, very large outcomes. The uneven payoff structure is a core reason many investors build portfolios of many small positions or rely on pooled funds and experienced managers to capture the few big winners PitchBook-NVCA Venture Monitor (see also PitchBook analysis).

This structure explains why people say most startups fail in everyday conversation: for many venture portfolios, a high share of companies produce no return, which feels like failure even if the portfolio’s overall returns are driven by winners.

Common reasons startups fail, from founder postmortems

How these causes vary by funding context: unfunded small businesses often close because owners shift priorities or fail to reach sustainable cash flow, while venture-backed startups may more frequently cite rapid scaling challenges, misjudged market size, or running out of runway before finding product-market fit. Understanding the proximate causes helps an investor focus due diligence on traction, cash runway, and team signals.

How to start investing in startups

This section explains common entry routes and the trade-offs you should expect. The main options for individual investors are direct angel deals, joining syndicates, investing in early-stage funds, or using regulation crowdfunding platforms to access small stakes in many companies. See our investing category for related guides.

Direct angel investing offers early access and control over deal choice but brings heavy time commitment, illiquidity, and selection risk; pooled funds or syndicates reduce deal-level work but add manager selection risk, while regulation crowdfunding broadens access with smaller ticket sizes but remains a small slice of total venture activity. SEC overviews of Regulation Crowdfunding explain the limited scale and specific rules for these offerings SEC Regulation Crowdfunding.

Qualification and minimums matter. Some angel deals and syndicates have investor accreditation or minimum check sizes, while some crowdfunding options permit smaller investors. Consider what you can realistically lose and the time you can spend on diligence before allocating capital to this asset class.

A simple evaluation checklist for early-stage deals

Use a short checklist focusing on measurable signals rather than promises. Useful items include evidence of traction such as repeat customers or growing usage, clear product-market fit indicators, founder background and complementary team skills, credible runway and unit economics, and a transparent cap table that shows realistic dilution scenarios.

Why these items matter: traction shows customers are willing to pay or use the product; a balanced founding team reduces execution risk; runway reveals whether they have time to iterate; unit economics point to potential long-term viability; and a clear cap table prevents surprises at later rounds. Startup ecosystem reports highlight how these factors correlate with stronger outcomes Global Startup Ecosystem Report (see aggregated startup failure stats).

Practical habit: set a per-deal size limit before you look at specific deals. Predefining a maximum check helps limit downside and keeps you disciplined when a compelling pitch creates emotional pressure to overcommit.

Decision criteria and sizing: how to limit downside

Position sizing is one of the clearest levers to control risk in early-stage portfolios. Because venture returns are skewed, many experienced angels use small initial checks across many opportunities rather than placing large amounts in a few deals, which preserves optionality and reduces single-deal exposure.

Factors that should reduce allocation or lead you to pass include weak or ambiguous traction, unclear unit economics, an opaque cap table with many preferred claims, or a founder team lacking relevant complementary experience. These are practical red flags that matter more than a persuasive slide deck.

Documented rules help. Write a short investment policy for yourself that states your maximum per-deal allocation, target number of positions, and minimum evidence you need before increasing exposure. Sticking to those rules reduces the chance of emotional overcommitment.

Typical mistakes new startup investors make

New investors commonly under-diversify by putting too much into one or two ideas, confuse hype with durable traction, skip basic cap-table checks, and underestimate how long liquidity can take. These process gaps increase downside and make it harder to capture the rare winner.

How to avoid these pitfalls: insist on basic traction metrics rather than promises, verify cap-table and dilution scenarios early, spread capital across many small positions if possible, and set realistic expectations for exits and secondary market timelines. These habits align with the evidence that many failures stem from execution and runway issues CB Insights startup failure reasons.

Examples and scenarios: angel deal, syndicate, fund, and crowdfunding case types

1) Angel scenario: imagine a new angel builds a pipeline from local demo days and personal networks, writes small checks of equal size into 20 companies, and spends time mentoring three founders. The portfolio is hands-on, illiquid, and requires significant time to assess follow-on needs.

2) Syndicate or fund scenario: a syndicate lead sources deals and handles negotiation, letting backers invest smaller amounts into selected opportunities, while a fund pools many opportunities but requires trusting the manager’s sourcing and follow-up decisions; pitch and fund reports show these pooled vehicles change the investor’s role significantly PitchBook-NVCA Venture Monitor.

3) Crowdfunding scenario: a retail investor uses a platform to buy small stakes across a dozen listed early-stage offers. This route lowers minimums and expands access but often yields low liquidity and small ownership stakes compared with direct or fund investments SEC Regulation Crowdfunding.

Each route shows different failure and success patterns: in angels you see hands-on follow-ups and potential follow-on needs, in funds success depends on manager selection, and in crowdfunding outcomes are highly variable and small in scale relative to institutional activity.

How many deals do you need to diversify: practical considerations

The logic behind holding many small positions is to reduce idiosyncratic risk because a few winners must make up for many losers in a skewed return world. The precise number depends on your goals, but the principle is clear: more independent bets smooth out variance in outcomes.

Practical limits matter: time for diligence, minimum check sizes, and your ability to add value to founders are real constraints. If you cannot meaningfully evaluate or support ten to twenty smaller positions, a pooled fund or syndicate may be a more practical route to diversification.

Balance is key: choose a diversification plan you can sustain in terms of capital and attention, and document it so you do not overconcentrate when a particularly attractive pitch appears.

Conclusion: sensible next steps if you are exploring startup investing

Key takeaways: treat the 90% figure as a cautionary heuristic rather than a literal probability. Survival and failure rates differ by definition and dataset, national statistics often show much higher survival at five years than the 90% shorthand suggests, and venture-backed outcomes are driven by a few outsized winners that skew results OECD Entrepreneurship at a Glance.

Practical next steps: learn the basics of startup evaluation, consider small exposures via diversified vehicles if you lack time for direct deal diligence, use a short checklist to screen opportunities, and set documented per-deal sizing rules to limit downside. Verify legal, tax, and accreditation details with qualified professionals before committing capital, or read our guide on financing acquisitions for related practical finance steps how to finance a business purchase.

FinancePolice aims to provide plain-language explanations and practical checklists so readers can make more informed decisions about personal finance and investing basics. Use primary sources and official reports to confirm details that matter to your situation OECD Entrepreneurship at a Glance.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.