David Feinlieb of Mohr Davidow Ventures has an interesting post on his Tech, Startups, Capital, Ideas blog entitled "Why Startups Fail." David highlights four main reasons around his general theme of "they run out of money":
- They spend too much on sales and marketing before they’re ready.
- The market outpaces the startup’s ability to execute.
- There is no entrepreneur.
- The market takes too long to develop.
David’s explanations behind each of these headlines are incisive and thought-provoking, and they underscore the challenging road startups must travel. I would add to the list the impact an industry or general economic slowdown can have on a particular startup, including when it comes to raising additional capital. (For more on the topic, you may find interesting an earlier post discussing the views of another VC on why early stage businesses fail and another one examining how a recession may affect investment decisions of VCs.)
On a similar theme is a post by Brad Feld of Foundry Ventures entitled "Do VCs Fund Entrepreneurs Who Have Failed At Previous Ventures?" over at the Ask The VC blog. Thanks to Brad as well for first blogging on David Feinlieb’s post on startups, where Brad observes that "we are heading for another wave of failure as companies run out of gas after their Series B / Series C rounds and their investors lose patience with them."
Brad sums up his views this way on the topic of funding entrepreneurs with a prior failed business:
My favorite entrepreneurs to fund are those that have had at least one success and one failure. While it is a cliche, failure teaches the big lessons. Most importantly, entrepreneurs that have some failure under their belt have humility and perspective that I think is deeply useful in the creation of the company.
Startups are inherently risky, even in a strong economic climate. As the potentially recessionary economy produces more failed startups, it’s especially valuable to have insights and perspectives like these from experienced VCs.