Sunk Cost

A key indicator that startup will fail

The most difficult thing for any founder, or an early stage employee in a startup is to admit that company is running out of steam. On the other hand, it is in everyone’s best interest to recognize the warning signs much sooner and prepare for the looming failure, than to prolong the agony and keep adding to the sunk costs. Company executives savvy enough to recognize impending signs of doom should be very honest with the employees and current investors and take responsibility to wind down operations in responsible and tax efficient manner. On the other hand, a startup can still exist if the key personel agrees that business is still viable as a slow growing, bootstrapped organization that is not being fueled by millions of dollars of venture capital investment and be so called “Main Street” business.


How can executives recognize that their startup has reached the peak and is now following a downward path? The key indicator, according to CB Insights Solution is missing out on major Series A round 13 months following seed investment: List of dying early-stage tech startups In other words, if you are working for a startup that has not secured a big multimillion dollar check in 13+ months, it’s time to re-evaluate your career options and have a serious conversation with your CEO, because this ship is sinking.


Close Series A round within 13 months of seed investment, or PERISH! 

Sunk Cost
Sunk Cost
Most angel backed technology companies on the US, according to CB Insights close a major Series A round with a venture capital fund within 13 months. Of course, some sectors that are currently in demand can close sooner and some will take little bit longer to find the perfect investor. The most popular sectors, such as collaboration and project management can most likely close within six months or so, while social network solutions will have to work harder to secure funding: Probability of getting Series A round by sector | ANAGARD, LLC. In any case, if the company has not been able to secure investment after a year, it is time to ask why? Is CEO working really hard to secure funding or not? If he or she has had dozens and dozens of meetings with no results to show for, then the message and the business model is not resonating well with investors, or maybe CEO is not connecting with the right people.


Growing a business is hard job and a lot of people fail along the way. In Silicon Valley, companies go out of business sooner compared to the “Main Street” businesses (Approximately what percentage of companies started in Silicon Valley fail?) because they have learned to recognize the signs of distress and move on before becoming too emotionally attached to a failing enterprise. No matter how painful, this is a healthy process as there is no point of throwing good money after bad.

Dragana Mendel, a management consultant for startups, small and medium size businesses develops and executes growth strategies for her clients. 


One response to “A key indicator that startup will fail”

  1. Sandy U. Nixon Avatar
    Sandy U. Nixon

    On January 23, 2012, it was reported that Twitter would be acquiring Dasient , a startup that offers malware protection for businesses. Twitter hopes that Dasient will help remove hateful advertisers on the website.