Getting to Series A: The odds and how we help founders beat them

Luke Smith

Partner + Investor

June 27, 2021

According to Startup Genome, 92% of startups fail within three years. Forbes puts the figure at 90% within five years whilst Mattermark shows the graduation rate from seed to Series A is less than 10% amongst “high profile” US startups.

While statistical variations arise due to the different vintages, geographies and definitions around funding rounds, whatever figures founders use to measure their startup risks, the odds are heavily stacked against them.

At Forward Partners, we help founders beat those odds.

In fact...

With us, pre-seed founders are 4x more likely to raise a Series A.

Arrive at pre-seed, leave with a Series A

Based on a cohort of 2,221 UK startups that raised their first investment between 2012 and 2016, our analysis of subsequent funding rounds reported in crunchbase shows that only 12% (260 companies) went on to raise a Series A.

Analysing the numbers behind our own portfolio within the same period, we know that 55% of the startups we backed at pre-seed have gone on to raise Series A investment. What’s more, comparing the two datasets, our pre-seed companies get there 26% faster, and achieve a 2.4x higher valuation than their UK comparables.

Why do startups fail?

“Most companies die from indigestion, not starvation.” -- Dave Packard

We reflected on lessons within our own portfolio, and partnered with UK company, Autopsy to take a look into why startups fail, and ultimately better illustrate how we help our own founders to succeed. Autopsy gathers data and lessons from failed startups. It has the largest database globally on startup failures, predominantly from pre-seed to Series A. Following its launch in 2015, the website reached #1 on Product Hunt and HackerNews, and received features in tech publications such as Bloomberg, The Next Web, Wall Street Journal and Business Insider.

It has been described by Marc Andreessen as the ‘catalogue of future successful startups’, and scrolling down numerous submissions, it is clear most failures are not through lack of investment, but one (or a combination of) product, market and executional failures.

Learning from 300 startup post-mortems

Looking at the data behind 300 startups “post-mortems” written by the founders themselves, Autopsy outlines the top 10 reasons why startups fail (below), as well as a deep dive into the top 5, drawing on relevant examples from founder submissions.

(Top 10 reasons for failure based on 300 failed startups via Autopsy)

#1 Not The Right Team

Nearly 20% of all autopsies stated their reason was not having the right team. When founders are attempting the precarious task of “jumping off a cliff and assembling a plane on the way down”, the right people with the relevant skills is of the utmost importance.

Ben Yoskovitz, CEO and Co-founder of Standout Jobs a B2B recruiting portal that raised a $1.8m round and closed after three years, shared in his autopsy:

“We raised too much money too early with the wrong team. Our founding team couldn't build an MVP on its own... if the founding team can’t put out product on its own (or with a small amount of external help from freelancers) they shouldn’t be founding a startup. We could have brought on additional co-founders, who would have been compensated primarily with equity versus cash, but we didn’t.”

FP Success Story:

#2 Wrong Business Model

Failure to identify a working business model was the case for 18.7% of failed startups. As the mechanism that outlines exactly how a company creates and captures through different revenue streams, it is the life-force that sustains every startup.

Cart, a US startup asking grocery stores to buy into a programme that reduces transportation barriers to their stores, realised early on that their business model was unsustainable.

‘We were able to test 8 key hypotheses to see if our technology, the market segmentation, and economic model could improve long-term food access for Detroiters. After analysing the pilot data, talking to a variety of stakeholders about our findings, and ongoing customer discovery, we came to the conclusion that our current model is not economically viable. We contemplated a series of pivots, but have come to the conclusion that these are also not economically viable.’

FP Success Story:

#3 Product Not a Hit

Nearly 14% of autopsies claimed the rollout of a substandard product as the cause for their failure. For this reason the London based startup, Karhoo, a taxi comparison app closed six months after launch (despite reportedly having raised up to $250m).

The company is well-remembered for offering free rides to passengers in order to entice them away from alternatives. The problem was that app codes never seemed to expire and people often went through £100 worth of free rides. There were also bugs within the app that would prevent the app from accepting credit cards payments. The team stated they should have seen the warning signs earlier: “When you look back, there were chinks in the armour. Thousands of pounds worth of promotional codes given to customers every week is lunacy”. Failing to move beyond 50k customers, the product was quickly overtaken by other players.

FP Success Story:

#4 No market Need

No market need equated to 11% of autopsy submissions, although many startup founders also stated the reason was not serving a market that was large enough to be venture scale.

Moped, a Berlin based free messaging app startup claimed it was going after the ‘sweet spot’ of sharing files over messaging. After having raised $1m and continuous efforts to target more users, it failed to attract a large enough pool of users and lost a high number of its initial user base. The app’s popularity and the number of users saw a steady decrease, and its inability to retain customers meant it was shut down on and its messaging app technology acquired by the founders of Wunderlist. The app was claimed to be somewhat ahead of its time solving a problem that served a very small proportion of users.

FP Success Story:

#5 Outcompeted

9.13% of startups failed because they were outcompeted. The dataset included multiple on-demand food delivery companies launched in 2013. Peak failure for the majority of related startups was in 2016, including Take Eat Easy - an on-demand food delivery service covering Belgium, UK and France. Having closed €16.4m in Series B funding, the company “faltered under fierce competition” from the likes of Deliveroo and Ubereats.

When trying to raise a Series C, the company was turned down by 114 VCs, and quickly ran out of cash. CEO and cofounder Adrien Roose explained: ‘We haven’t been able to raise additional capital to fuel the company until break-even… We knew we had to gear up as one of our own investors [Rocket Internet] acquired and invested aggressively in a direct competitor, now Foodora, and Deliveroo had just raised a massive round of funding. Unfortunately for us, they raised and announced an even bigger round a couple of weeks later. That didn’t help."

FP Success Story:

We’ve got your back…

Our success is ultimately down to backing great entrepreneurs. We won’t turn you away if you don’t have a product or your first customers, and we don’t expect you to have a co-founder.

We don’t make bets, we make commitments. That means, we’ll provide your first investment and our team of world-class startup experts. We'll get you moving fast so you can launch and start building your own great team quicker. We provide founder leverage.

Special thanks to Maryam Mazraei, Founder & CEO of @getautopsy for co-authoring this article (You can follow her on Twitter here @mmazco). To gain more insight into why startups fail, sign up to the Autopsy Subscriber List or to help entrepreneurs by sharing your story, you can submit an Autopsy here.

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Luke Smith

Partner + Investor

June 27, 2021

Luke joined Forward Partners from REV Venture Partners, a corporate VC, where he was responsible for deal origination, investment due diligence and portfolio reporting. He was previously a consultant with the strategy consultancy Oliver Wyman, where he worked across the retail, aviation, healthcare and FMCG sectors. Luke originally planned a career in science and he holds a PhD in biochemistry. His focus at Forward Partners is on sourcing and executing new investments.