Breaking Down Startup Investment Failures: Insights by Revenue and Platform

CHART OF THE WEEK 📈

By Brian Belley | Read

Investing in startups is risky. But is investing in more mature companies with higher revenues less risky? What about investing in small business (debt and revenue-share) deals versus startups? And how have investments performed across different funding platforms?

A “failure” here is defined as a negative outcome for investors in a deal—such as a business shutting down, declaring bankruptcy, being liquidated, selling its assets, or otherwise returning less than 1X of the original invested capital to investors.

• Among the 386 equity crowdfunding company failures to date (spanning 501 deals), the average failure rate for the market is 7.9%.

• This equates to a 6.1% failure rate among all Reg CF and Reg A+ companies (as some companies that failed conducted multiple online offerings).

• Pre-revenue companies had the highest failure rate at 7.1%, while companies with $10 million or more in annual revenue had the lowest failure rate at 2.0% on average.

• There is a general trend indicating that higher revenues correlate with lower failure rates, though the trend is not consistent across every revenue bracket.

• From a platform perspective, the three with the lowest known failure rates to date are Dealmaker Securities, PicMii, and Silicon Prairie — each with only 1 failure out of their 50+ offerings.

• The failure rates for deals on the top four platforms by deal count are as follows: Wefunder (5.3%, 106 failures), StartEngine (6.4%, 107 failures), Republic (7.6%, 58 failures), and Netcapital (3.9%, 17 failures).

• Equity crowdfunding deals as a whole had a higher failure rate of 7.9%, while debt crowdfunding deals had an overall average failure rate of 4.7%.

To read the in-depth analysis and view the failure rate data by funding platform, read the full article here.

Breaking New Ground: The NYSE® OPEN Venture Capital Unicorn® Index Officially Launches

Two weeks ago, OPEN publicly launched the NYSE® OPEN Venture Capital Unicorn® Index (NYSEOVC) in partnership with their strategic partner and largest external shareholder, the Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange. 

About the Index

The NYSE® OPEN Venture Capital Unicorn® Index is a capitalization-weighted index comprised of the largest 50 venture capital-backed private companies domiciled in the United States. Through unique data ingestion - the Unicorn Index is substantially more reflective of market conditions than existing private market indices.

Why is This Important?

The NYSEOVC is a first-of-its-kind investable index family that enables access and transparency into today’s most innovative private companies.

With many companies in the index still recovering from the downturn in 2022, the timing presents a unique opportunity to purchase names at a discount to their last primary round.

With the index live, the OPEN team is now shifting focus around raising capital into their flagship fund product, the Unicorn Index Fund (UIF), which tracks the index and will hold top names like SpaceX, OpenAI, Stripe, and more for 2% Management Fee and 0% Performance Fee. 

Interested in learning more about the index data? Click here

Want access to top names getting ready to IPO? Get in touch with the OPEN team.

PITCH REVIEW 💸

By Teddy Lyons \ Deal Report

Brief: Syntensor is a healthcare technology company focused on improving drug development processes through advanced artificial intelligence (AI) models. The company specializes in simulating how drugs interact with the body at cellular and tissue levels, aiming to predict drug efficacy and potential side effects before clinical trials commence. This approach is designed to be generalizable across various diseases, therapeutic modalities, and patient genotypes and phenotypes. Syntensor has a fully operational platform and is currently piloting with ~6 companies with hopes to begin generating revenue at the end of 2024.  The company is venture-backed and raised $1.5 million from Lifeforce Capital and $500k from both Hula and Morningside. Lexi Ventures is also participating in this SAFE round.

Key People: Syntensor is led by Founder and CEO/CTO Clayton Rabideau, who holds a PhD in Chemical Engineering and Biotechnology from the University of Cambridge. His research focused on computational synthetic biology. He is joined by Co-Founder/Advisor Rosie Higgins, who holds a BA in Contemporary Media Practice from the University of Westminster. She previously served as COO of BenevolentAI, an AI-powered drug discovery platform. She was also Head of Product and UX at Lulu and VP of Program Execution at Novartis. Syntensor also has four full-time engineers.

Summary

Here's what we like: Drug development is a notoriously long, expensive process that often ends in failure. Predicting how a drug will react once it enters a human is essentially impossible, even if it has been proven safe in animal trials. However, in the new age of artificial intelligence and machine learning, the potential to accurately simulate the biological effects of drugs in humans has seemingly become a possibility. Syntensor is the first company to have created a platform to simulate how drugs will react in humans on a cellular and tissue level. While competitors in this space are utilizing AI to develop and bring medicines to market, Syntensor has created a generalizable platform across diseases and therapeutics. This allows the company to sell its software directly to pharma companies without having to develop drugs itself.

Here's what we don't: While this technology is potentially revolutionary, it is still in V1 and under beta testing by potential customers. The company has not yet reached product-market fit, as the results of these piloting trials remain to be seen. Additionally, selling software to pharmaceutical firms is notoriously difficult, as these firms have been around for decades, and trying to get the Pfizers of the world to change their process is very hard. Additionally, there certainly are competitors in the space like Atomwise and Recursion, that are using AI to aid in the development of their novel small-molecule therapies. While Syntensor is technically not developing its drug assets (i.e. developing its drugs), these competitors could begin licensing their process to pharma companies like Syntensor, leading to increased competition.

LAST WEEK’S POLL RESULTS

Would you invest in EnergyX?

🟩🟩🟩🟩🟩🟩 👍 (12)

🟨🟨🟨🟨⬜️⬜️ 👎 (9)

21 Votes

STAFF PICKS 🌶️

Arcade Therapeutics

Arcade Therapeutics creates evidence-backed therapeutic games aimed at treating depression, anxiety, and addiction. Arcade Therapeutics' game-based treatments are clinically effective, with an FDA-reviewed trial showing a 90% reduction in anxiety symptoms for participants within 30 days. Founded by Raj Amin and Tracy Dennis-Tiwary in September 2019, the current crowdfunding campaign seeks to raise between $50,000 and $1.24 million for game development, sales, marketing, and operational expenses.

• Valuation Cap: $12.5 million

• Minimum Investment: $250

Fathom Video

Fathom Vide has developed an AI-powered platform that replaces manual note-taking with automatic note-taking, allowing users to record, transcribe, and summarize virtual meetings in real time. Fathom Video is the most-installed AI meeting assistant on the Zoom and HubSpot marketplaces, achieving 77 times revenue growth in 2022.

• Pre-Money Valuation: $73 million

• Minimum Investment: $100

SmartDrone

SmartDrone provides a full-stack service that includes drone manufacturing, software development, and field operations. Since its inception in 2020, SmartDrone has completed over 200 projects and generated $1.5 million in revenue. SmartDrone addresses inefficiencies and high costs associated with traditional surveying methods by offering a drone-based solution that is faster, more accurate, and cost-effective, reducing labor and errors in surveying projects.

• Pre-Money Valuation: $10.8 million

• Minimum Investment: $261

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