1 2Q 2019 PitchBook-NVCA Venture Monitor, PitchBook, July 10, 2019, McKinsey analysis.Īmong the start-ups that have successfully built a product and completed at least series B funding, only 22 percent succeed independently at getting to that stage. Of the $135 billion invested by US VC firms in 2018, 63 percent was deployed to enable successful start-ups to scale their product or service (series C funding and later). VC firms have a clear understanding of that value. Based on an analysis of US venture-capital (VC) data, two-thirds of value is created when a company scales up to penetrate a significant portion of the target market (Exhibit 1). While most companies tend to focus on launching new businesses, the real value comes from being able to scale them up. Scaling new businesses is where the value is Given the great digital migration that has occurred during COVID-19, that innovation needs to be focused on digital-from direct-to-consumer models to remote services. We know from past economic crises that businesses succeed by reining in costs and driving innovation. This significant improvement in the rate of success should be welcome news for large incumbents looking for new growth in the facet of unprecedented economic hardships. Our experience with dozens of companies launching businesses is that more than 60 percent of scaling efforts can succeed. That’s not unexpected in the volatile world of start-ups, but it’s a dispiriting failure rate nonetheless-and it doesn’t have to be that way. In fact, only one in five incumbents succeed in scaling their business after their initial success. If this situation is familiar to you, you’re not alone. But after some initial success, it’s not scaling. So you’ve launched a new business, gotten the funding, built a product, and created a brand.
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