Fintech startups told to follow the money or crash and burn

Fintech startups told to follow the money or crash and burn

Nine out of ten fintech startups fail to get beyond the seed stage, as risk-averse investors prefer to wave their wallets at later-stage companies.

According to data from Medici, the average sums offered for seed-stage companies in 2010 were $6.84 million, with $20.31 million allocated to early-stage VC rounds, and $26.64 million for VC rounds. In 2017, the average figures plummeted to $3 million for seed-stage companies but grew to $41 million for early-stage VC rounds and $1.566 billion for large-stage VC rounds.

Medici says the data contains a stark message for entrepreneurs who are just starting out, pointing to anecdotal evidence of a 90% failure rate for bootstrapped startups. By Series A, the survival rate of US startups generally gets to about 40%, says the firm, to ~25% by Series B, and by Series D it drops to about 5%.

"With 9 out of 10 startups failing, the one that becomes a hit has to be not just incrementally better than the competition but offer a 10X better experience" says Medici. "To become that one startup out of ten, a startup requires significant resource investments - time, talent - all of which comes down to money - to dive deep into understanding the market, performing research, building the product, testing, etc. None of that is possible without funding."

For the starry-eyed innovators out there, the silver lining comes from an exploding range of alternatives to VC funding, including multiple forms of crowdfunding, government-sponsored financing, and big bank venture funds, a trend which Medici refers to as the 'democratisation of startup financing'.

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