What are the odds of an internet startup being funded

Every new entrepreneur’s dream is raising millions of dollars from angels, vcs…and maybe even an IPO, but what are the chances of actually landing that cash from institutional investors? Is it a realistic goal or only a pipe dream?

I’ll be using TechCrunch’s CrunchBase database to find an answer this question (and a few more down the road), so if you’re not familiar with the database swing by and take a look before continuing. Here we go:

CrunchBase contains a total of 71,803 companies of all stripes and sizes, fully maintained and annotated by whomever would like to drop their knowledge. Like Wikipedia, there’s always a chance of incorrect data, but I’ve always found it to be reliable, sourced, and largely accurate (especially in the aggregate). Of that sample, 12,925 companies have funding attributed to their profile.1 That means roughly 18% of all companies submitted to CrunchBase have received some sort of funding. For reference, that’s about the same odds of landing undergraduate admission to Cornell University (not bad!).2 But what if we take a look at the funding distribution?

Despite what the media may wish you to believe, not every startup raises $1 Billion and receives an offer from Google.3 In fact, the number is more around 23 (0.18% of funded companies).4 Let’s take a look at the data visually:5

Funding Bar chart here

There are two main points that jump out:

  1. The majority of aggregate funding occurs below $3 Million. This amounts to just over 50% of companies who receive funding in the $0 to $20 Million range (a.k.a., reality).6
  2. Those spikes you see? They’re from investors that tend to make it $rain$ in increments of $1MM (and to a lesser extent $500K). Just one of the quirks that makes data analysis fun.

So what does this all mean for your startup? If you’re already at the top of your class by receiving funding, there’s a good chance you’ll raise less than $3 Million in your company’s lifetime…and if we want to be honest with ourselves, roughly 1 in 4 funded startups will never see more than $1 Million.7

This post is part of a new series I affectionately call “BubbleCrunch”, which seeks to analyze the mountains of data maintained by TechCrunch’s impressive CrunchBase as of August 2nd, 2011. Have questions? Want me to dig into something? Drop a comment!

  1. I know, I know, not all companies publicly post their funding or have been categorized by the CrunchBase Bots
  2. http://www.thedailybeast.com/galleries/2011/02/23/difficult-colleges.html
  3. although it has been pretty common of late
  4. defined as those receiving over $500 Million
  5. many apologies for the lame charts…part of my BubbleCrunch series will be exploring javascript visualization tools, but unfortunately for now I’m stuck with Excel–which doesn’t even have Helvetica!
  6. this histogram represents around 80% of companies funded, and it includes the aggregate amount of funding since the company was founded. In future posts I’ll adjust for inflation, age of company, time period, blah blah blah, but for now, let’s just enjoy the journey
  7. just like any statistical analysis, it’s easy to draw conclusions that aren’t correct. Obviously just dropping your company on CrunchBase won’t guarantee you a chance of getting funding. Additionally, some startups never need to raise funding or are sold before they need to raise more than $1 Million. Let’s stay optimistic!

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