F inancial losses for today’s start-ups are much more common than they were decades ago, and the losses are much bigger. VCs are making back less fr

Why Are Start-Ups Losing So Much Money?

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2024-11-25 23:30:04

F inancial losses for today’s start-ups are much more common than they were decades ago, and the losses are much bigger. VCs are making back less from their initial investments than at any point since the global financial crisis of 2007–9. According to a study by Jay Ritter, only 22 percent of start-ups were profitable in 2021, the year of peak IPOs, versus 80 percent in the early 1980s.1 And today’s start-ups are not becoming more profitable over time. About 85 percent of America’s unicorn start-ups (those valued at more than $1 billion before doing IPOs) that have gone public were unprofitable in 2023, despite most having been founded more than fifteen years earlier. The percentage of unicorns going public has also barely increased over the last five years.

The continuation of large start-up losses over many years means that cumulative losses are much larger than they were decades ago. As of early 2024, twenty-three American unicorns had more than $3 billion in cumulative losses, the amount Amazon had the year it became profitable. Five of them (Uber, WeWork, Rivian, Teledoc Health, and Lyft) had more than $10 billion, with Uber well over $30 billion. Other members of this club offer crypto, AI, consumer products, business software, biotech, electric vehicles, and healthcare. Despite these companies having significantly higher losses than Amazon, Amazon’s eventual success continues to be used as an excuse, as if all start-ups can do what it has done.