The data behind the the natural selection process of venture capital. 75% of companies are orphaned or die along the way. 21% get acquired. And the rest (4%) are your potential unicorns.

Once you take venture capital, what can you expect?  Below is what the data says life will look like.

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But first, some notes (based on initial comments & questions):

  • This analysis uses the 2009 vintage of seed VC-backed tech companies. This is a sufficiently mature cohort of companies for us to conduct this analysis on.
  • It only includes seed financings that involve a venture capital firm.  Companies receiving early backing from angels, incubators, etc, while tracked by CB Insights, are not included in this brief.
  • Seed VC deals were on the whole less prominent in 2009.  They’ve risen in popularity in the last few years with the explosion of micro-VCs and multi-stage funds doing seed deals

venture capital funnel

Here’s some facts:

  • After an initial seed round, 54% companies raise a 2nd round of funding.
  • 9% raise a 5th round of financing — Interestingly, on average, it take 5 rounds of funding to get to the elusive billion dollar valuation
  • 21% see an exit via M&A
  • 75% of companies are either dead, the walking dead (bad outcomes) or became self-sustaining (a potentially good outcome for the company but prob not good for their VC backers).  It is hard to know the breakdown for these companies as funding announcements get a significant amount of fanfare but cash flow positivity or profitability do not. Death of companies generally happens quietly in the middle of the night (although increasingly, startups are willing to share their failure post-mortems)
Ultimately and despite the angst about the Series A Crunch (and now the Series B Crunch), the reality is that these “crunches” are mostly just the inevitable natural selection process that is venture capital.  Not everyone can be above average, and for VCs who are stewards of LP money, average is the enemy.  Of course, the ability of VCs to spot winners is mixed (putting it generously).


Other observations:


While the pruning after the first round is significant, it continues to be difficult throughout with about 1 in 2 companies raising follow-on financing after each round.
Interestingly, for those tech startups that are able to get past that 2nd financing, nearly 2/3rds of the cohort (67% – 58/86) went on to receive a third round.


How hard is it for seed-backed startups to raise four follow-on rounds? By the fourth follow-on, just 20% of the initial group of tech startups are left in the funnel.


The odds of having enough gained enough traction to make it to a fifth follow-on financing were just 9%. By this mark, 19% of the startups had been acquired or acqui-hired. That fewer than 10% of the seed VC-backed tech startups in 2009 were able to make it to five, let alone six, rounds of follow-on funding speaks to the immense difficulty of continuously raising financing as a venture-backed startup.

For entrepreneurs who’ve raised multiple rounds of financing or venture capital investors making the decision to invest in companies, how does the funnel above parallel your experiences?  Look forward to your comments.

All the underlying data for this venture capital funnel analysis comes from CB Insights venture capital database. Sign up below.


  • Steve_2014

    Why are acquisitions considered a loss according to this funnel? Acquisition is the goal for the vast majority of companies – most don’t WANT to be the next Facebook. Of course it is interesting research to challenge the accepted social narrative that it is most desirable to be the next unicorn (sure, the money is nice, but cashing out from a M&A isn’t bad either). It would be an interesting next step to see where the cash amounts fall in this funnel – therein defining winners not by the ability to attract multiple rounds of funds but to drive valuation of the company and exit with cash in hand. And the most interesting piece of research would be to see where the serial entrepreneurs emerge in this pipeline – and how much value they create over say 10 years.

  • Anand Sanwal

    Great point. But when raising VC, they are looking for the next Facebook (most of them at least). So from a VC perspective, the unicorns are what they’re interested in.

    But great point that many of the M&A that might have happened could be great outcomes for the teams behind these companies.

  • Paul Van Cotthem

    It would be interesting to add an additional layer to the front-end of the funnel, namely “What percentage of all start-up companies make it to the stage where they get any VC-funding at all?”

    Does CB Insights have any figures about this?


    I would encourage you to dig deeper into data to segment “self-sustaining” companies that do not seek or require VC funding. I would be very interested in seeing such analysis and would be willing to help you with such project.

    I am based in North Carolina and most startups and new businesses in South East region have to bootstrap their business and they grow slowly without getting external funding (excluding biotech segment) because of lack of venture capital funds in the region. That doesn’t mean that we don’t have a vibrant entrepreneurial community; yes, we do, with top engineering universities in Triangle, we have plenty of research that is just waiting to be commercialized. Because of that, it would be nice to see statistics related to companies that bootstrap their business and to encourage organic growth because venture funding is scarcely available outside Silicon Valley.