“I’d invest more in early stage companies if they were higher quality.”
- Common investor sentiment
Most startups build products nobody wants. We estimate 90% of the capital invested in startups is wasted on designing, building and selling products that don't have a viable market. Entrepreneurs often take a leap of faith and hope they hit some customers on the way down.
This happens because the assumptions some entrepreneurs make when building their business turn out not to be true. It's easy to get caught up in the passion of how great your startup business could be while forgetting to validate the underlying hypotheses that are implied in every idea. Achieving product-market fit is not an easy or trivial task.
As a result, the failure rate of technology startups is very high. Y-Combinator, a startup seed fund and accelerator many consider to be best in the world, has a failure rate of 99.6%. A high failure rate is considered normal and accepted in the startup community. We think this is not a reality of the risk associated with startups, but a failure to understand customers and apply insight to the business model.