We’re a big fan of Beauhurst’s research data. Beauhurst is a data platform that lets you discover, track and understand high-growth companies, accelerators and funds. They recently published an article that explores how many high-growth UK companies fail, scale, and exit within five years of incorporating, and how many simply tread water, not failing nor scaling. Their article points out that nearly 60% of small businesses fail within their first three years of operation. Despite the high-growth ecosystem in the UK, startups fail frequently.
How many successfully scaled?
Of the 2,582 companies that they assessed, around 23% successfully scaled within their first five years.
Most of them disappeared. What happened to them?
The majority (54%) of companies in their cohort stagnated, not progressing beyond the Seed stage in their first five years.
What was the average time it took for a failed company to go under?
These businesses had an average lifetime of 2.94 years, with a fifth of companies struggling to survive just three years on from incorporating.
20% of companies had moved to the Zombie or Dead stages without progressing, and are thus classed as having failed. On average, these businesses secured less than one equity deal each, while the average amount raised was just £289k.
What are the hardest-hit high-growth sectors?
Within five years of incorporation, 37% and 36% of businesses operating in the consumer travel and live events sectors went under.
What sectors have the most potential for success?
Business providing nursing and care services (56%), payment processing (49%) and insurance services (47%) scaled more than other sectors. Companies that exited were mostly in the software-as-a-service (SaaS) and internet platform sectors. One example is Immotion Group, a virtual reality (VR) company incorporated in 2017 that went public in 2018. Online games companies were most likely to exit within their first five years (14%).
What happens to startups in the UK?
According to Beauhursts’ data, most early-stage ventures fail or stagnate within five years. There is no doubt that this is distressing to entrepreneurs and investors at these companies. But while this may seem like a cause for concern, the UK’s high-growth ecosystem is a discovery mechanism for innovative ideas, novel products and new business models—failure is a natural part of this process. Although high company stagnation and failure rates would be disturbing in other parts of the economy, here, it suggests that UK entrepreneurs are continuing to push the boundaries of what’s currently possible. The 23% of companies that have scaled hold promise for the future—successful growth businesses, global innovators, and unicorns will no doubt emerge from their ranks.
Contact us for an exploratory call to see how we can help you stay in the 23% of successes
We believe that sound accounting practices and having a financial partner will only promote the success of an early stage venture. Our startup accountants at Square Mile will help you plan and monitor your finances by giving backups, models, and solutions, allowing your venture to benefit from the plan. Our accountants go beyond the numbers on financial statements, increasing you company’s decision-making capabilities.