Nine out of ten fintech startups fail to get beyond the seed stage, as risk-averse investors prefer to wave their wallets at later-stage companies.
According to data from Medici, the average sums offered for seed-stage companies in 2010 were $6.84 million, with $20.31 million allocated to early-stage VC rounds, and $26.64 million for VC rounds. In 2017, the average figures plummeted to $3 million for seed-stage companies but grew to $41 million for early-stage VC rounds and $1.566 billion for large-stage VC rounds.
Medici says the data contains a stark message for entrepreneurs who are just starting out, pointing to anecdotal evidence of a 90% failure rate for bootstrapped startups. By Series A, the survival rate of US startups generally gets to about 40%, says the firm, to ~25% by Series B, and by Series D it drops to about 5%.
"With 9 out of 10 startups failing, the one that becomes a hit has to be not just incrementally better than the competition but offer a 10X better experience" says Medici. "To become that one startup out of ten, a startup requires significant resource investments - time, talent - all of which comes down to money - to dive deep into understanding the market, performing research, building the product, testing, etc. None of that is possible without funding."
For the starry-eyed innovators out there, the silver lining comes from an exploding range of alternatives to VC funding, including multiple forms of crowdfunding, government-sponsored financing, and big bank venture funds, a trend which Medici refers to as the 'democratisation of startup financing'.