Zombie startups: why are entrepreneurs failing to grow their businesses?

Only a small percentage of companies succeed past early investment. To fix this founders need to stop thinking short term

Shaun of the Dead film still, a crowd of zombies
 There’s an increasing number of companies that keep going after funding runs out but don’t grow – also known as zombie startups. Photograph: Universal/Sportsphoto Ltd/Allstar

For all the support they promise startups, business accelerators are arguably not delivering. Too many startup founders are not getting to the finishing line of a big pay day on exit or stock market launch.

The UK is ranked third in the world by the Organisation for Economic Cooperation and Development (OECD) for the amount of startups created but only 13th for the number that go on to become established medium-sized companies. Lack of access to financing as a business matures is clearly an issue.

government report has shown that fewer than one in 10 firms that obtain seed funding in the UK go on to receive later stage fourth round investment, compared with nearly a quarter in the US. Last week the Treasury announced it will set up a national investment fund to address an estimated £4bn funding gap between US and British firms.

But an often overlooked problem is that many startups take a disjointed short-term approach to growth which is killing the golden goose before it gets to market.

Source: Zombie startups: why are entrepreneurs failing to grow their businesses?

Here’s how start-ups get funded before they’re ready for venture capital

  • According to the SBA, entrepreneurs use personal savings more than any other source of start-up financing.
  • Crowdfunding is a new source of capital for founders, but there’s a big difference between equity fundraising online, rewards-based crowdfunding and peer-to-peer lending.

19 Hours Ago

Millennial working on computer

Aly Song | Reuters

Fledgling businesses rarely command seed or venture funding right out of the gate. But they still need cash to get started.

While entrepreneurs have more capital sources than ever before, they’re also faced with a ton of misinformation.

For example, a PwC report last month raved about crowdfunding and how it’s helping female founders get ahead in business. The report lumps Kickstarter-style campaigns together with peer-to-peer lending and equity fundraising online. It regards these as a single source of capital, which it calls crowdfunding.

In reality, there’s a big difference between securing a loan for your business and winning over backers on a site like Kickstarter. Meanwhile, equity crowdfunding, enabled by sites like AngelList, CircleUp and SeedInvest, is generally for businesses that are further along.

On the equity sites, founders provide a business plan, including information about early sales and user traction. Investors can browse and evaluate deals. After a mutual due diligence process, start-ups issue stock to investors.

Here are the real ways that most entrepreneurs get money at the very start.

Source: Here’s how start-ups get funded before they’re ready for venture capital