Startup Failures On The Rise

Given all the bad news from Wall Street, Mo Town and elsewhere around the country and world, I’ve been curious whether there has been a jump in startup failures.  Of course, most startups don’t issue a press release when they fail, however there is a proxy in Tech Crunch’s Deadpool.

So I cranked out a pivot table to see the number of Deadpool articles by month and got the chart at right which shows 165 companies that failed over the last 2.5 years.  That seems low to me, by the way, so who knows what percent of all failures Tech Crunch is able to report.

While there has not been exponential growth in startup failures, there has been a pretty steady increase in the number of companies that fail.  In 2006 about 30 companies failed compared to 60-ish in 2007 and about 90 so far in 2008.  With 34 failures, Q4 of this year is already the biggest quarter for startup failures in the past 10 quarters.  And history would indicate that December is the biggest month for startups to go out of business so brace yourself!

Obviously this is going to be something to watch.  Startups tend to be the coal miners (as opposed to the canaries) because they raise 12-18 months of cash per round which means they will start failing about that long after VC funding dries up.  It’s pretty clear that the VC funding tap has been shut for about 3 months at least so most startup failures should come in 2009.