Study: One in five start-ups dot-bombed

September 20, 2002 9:07 AM

Study: One in five start-ups dot-bombed "Nearly one in five start-ups backed with venture capital at the peak of the Internet boom went out of business before first-stage investors could sell their shares, costing them billions of dollars, according to a study released Thursday". Does 20% seem like too small a number to anybody else?
posted by SandeepKrishnamurthy (13 comments total)

An astonishingly large number of dot.com startups are still around; in fact, every single one of the companies I worked for during the boom still exists in some form or another (one now exists only as a brand-name, but hey, you'd recognize it).

This is not a bad failure rate for an industry that didn't exist 10 or 15 years ago.
posted by hob at 9:16 AM on September 20, 2002

80% of businesses fail in the first 5 years.... but yeah, the dotcoms I got laid off from are still around, albeit slimmed down.

Ahh... if only Kozmo had made it, though... how sweet life would be. Peapod, though, is still alive in little pockets of the US of A.
posted by ph00dz at 9:25 AM on September 20, 2002

Interesting observations, hob and ph00dz. It might be that you can cut a lot of costs in a dotcom business and still keep the service hobbling along, which may be harder to do in a "real" company.
posted by Triplanetary at 9:30 AM on September 20, 2002

I've found the same thing -- 3 out of 3 of the start-ups that I've worked for still exist in some form or another. The first was purchased before the 'boom' and continues today. The second is alive with a much, much smaller staff then when I worked there. The start-up I work for now is profitable and thriving.
posted by drobot at 9:32 AM on September 20, 2002

Yup, all three of mine are still around too.
posted by zeoslap at 9:53 AM on September 20, 2002

Operative word in this is "Venture Backed" companies: these do not fail at quite the same rate as the hoary "80% in five years" statistic. And then there's the peculiarity of riding down the boom: If you got your series D, E, F -- or other late-round financing at the peak of the boom, you are likely sitting on a pile of cash you just don't know how to spend. A public company with this problem is Net Perceptions -- with $65M in cash and short term investments & 2Q revenue of $1.6M, most of which is support. Their NEW license revenue in 4Q of last year was just $43,000!

For what it's worth, I started a company in January 2000 and recently sold it, so deals are getting done -- just at a much, much more modest level.
posted by minnesotaj at 10:04 AM on September 20, 2002

I think the term "bust" was more psychological than anything. Suddenly, mid-twentysomethings weren't becoming overnight millionaires and folks screamed.

Then again, I could be wrong. I've never worked for a dotcom.
posted by Team_Billy at 10:10 AM on September 20, 2002

Having never taken the dot.com nickel, I'm not really in a position to comment but if anything, 20% too high a proportion.

Looking to the UK, over the 12 months to the end of Q2 2002, only 1.1% of registered businesses failed. As such, the dot.coms do seem to still be living up to their mayfly reputation. Admittedly not all of these business failures were venture capital backed as in the linked article. I wonder if the business failure rates are higher in the States where rates of entrepreneurship are much higher?
posted by dmt at 10:11 AM on September 20, 2002

I'll chime in here ... the first dot-com startup I worked for (whose story I detailed in another post) is definitely still around, and still going strong, though not in any form I'd wish to go back to. Given that the company's mission is now merely to keep the (top-heavy) executive structure living nicely in Paradise Santa Barbara, California, I find myself wondering if that's what's up with most of the survivors ... keep your head down, weather the current economy, keep the execs in hi-balls.

The second start-up, for whom I'm currently working, is going strong, but we work out of a big industrial sheet metal building and drink coffee we bring in ourselves rather than a corporate office worthy of Architectural Digest and having our coffee brought to our desks by a Starbuck's employee. And we're actually growing instead of just keeping the status quo.
posted by WolfDaddy at 10:26 AM on September 20, 2002

In my mind, the key phrase here is " Nearly one in five start-ups backed with venture capital at the peak of the Internet boom went out of business before first-stage investors could sell their shares, costing them billions of dollars, according to a study released Thursday."

In many cases, I think, the early stage investors got out and passed on the big hit to other, later investors.

My record, for the record: dotcom I worked from 1997-1999 got bought at the height of the boom (I made a little money off that); LARGE dotcom I worked for 1999-2000 is completely gone; dotcom I worked for in 2000-2002 (which started late, in 2000) is still in business but struggling (and laid me off a few months ago). I now work for a company that I guess could be called a dotcom success.
posted by tippiedog at 10:27 AM on September 20, 2002

Well, so far all I've worked for are dotcoms. Two of'em to be precise. The first one landed probably 5 or 6 million in total VC, and is quite dead now. The second, I am still at, and we have just broken even and are on the way up :)
posted by ruggles at 11:08 AM on September 20, 2002

most of my old ones are still around too, although suffering. one of them has lost their Business entity certification twice. Plus, this guy would be jailed fairly quickly as soon as somebody reports him to the IRS. I've been tempted, since he still owes me $2000, but have resisted. Now I'm not sure, since he seems to be laying slander on me. I have the tax fraud phone# bookmarked now.
posted by LuxFX at 1:35 PM on September 20, 2002

LuxFX: At the very least he should be thrown in jail for allowing a website to hijack one's browser like that. Jeezus, at least three popups, including a full screen flash? Uh, no.
posted by jeremias at 3:32 PM on September 21, 2002