Key Takeaways
- • 75% of venture-backed companies fail to return cash to investors, according to research by Harvard Business School lecturer Shikhar Ghosh analyzing more than 2,000 companies that raised at least $1 million between 2004 and 2010.
- • 30–40% of failed VC-backed startups liquidate assets entirely, resulting in total loss of investor capital, while the remaining failed companies return only partial capital or operate with diminishing returns.
- • Venture capital fund performance substantially underperforms public markets: The Kauffman Foundation reported that 62 of 100 venture funds failed to exceed public market returns after accounting for management fees and carried interest.
- • Portfolio failures remain largely hidden from public view, with venture capital firms systematically removing unsuccessful companies from public disclosure and avoiding discussion of losses—a practice Ghosh characterizes as burying "their dead very quietly."
- • The research reveals systemic underperformance across the VC ecosystem, challenging the narrative of consistent success that dominates industry communications and suggesting that failure rates are substantially higher than commonly acknowledged.
Summary
Harvard Business School lecturer Shikhar Ghosh has released research findings that fundamentally challenge the narrative of venture capital success rates. His study of more than 2,000 venture-backed companies that raised minimum funding of $1 million between 2004 and 2010 reveals that approximately 75 percent never return cash to their investors. Of these failures, 30 to 40 percent result in complete asset liquidation, leaving investors with total losses. The research was reported by the Wall Street Journal and indicates that startup failure rates are substantially higher than commonly understood by the investment community.
Ghosh's characterization of venture capital industry practices—that VCs "bury their dead very quietly"—points to a broader transparency issue within the sector. Venture capital firms systematically remove failed portfolio companies from their public websites and communications, creating a perception of success that masks underlying performance challenges. When asked directly about portfolio failures, venture capitalists typically redirect discussion toward successful exits, effectively obscuring the scale of losses from public view.
The findings gain additional weight from concurrent research by the Kauffman Foundation, which reported that 62 of 100 venture funds failed to exceed returns available from public markets after accounting for management fees and carried interest. This metric suggests that the majority of venture capital funds underperform accessible public market alternatives on a risk-adjusted, fee-inclusive basis. Together, these datasets indicate systemic challenges in venture capital performance that extend beyond individual company selection failures.
The research underscores that startup success requires persistence, strategic acumen, and elements of luck that many ventures fail to achieve. While entrepreneurial failure is widely acknowledged as part of the business ecosystem—particularly in markets like Seattle with significant startup activity—Ghosh's quantified findings suggest that success rates may be materially lower than industry messaging implies. The concentration of losses among venture-backed companies raises important questions for institutional investors regarding capital allocation decisions and fee structures within the venture capital space.
Ghosh's characterization of venture capital industry practices—that VCs "bury their dead very quietly"—points to a broader transparency issue within the sector. Venture capital firms systematically remove failed portfolio companies from their public websites and communications, creating a perception of success that masks underlying performance challenges. When asked directly about portfolio failures, venture capitalists typically redirect discussion toward successful exits, effectively obscuring the scale of losses from public view.
The findings gain additional weight from concurrent research by the Kauffman Foundation, which reported that 62 of 100 venture funds failed to exceed returns available from public markets after accounting for management fees and carried interest. This metric suggests that the majority of venture capital funds underperform accessible public market alternatives on a risk-adjusted, fee-inclusive basis. Together, these datasets indicate systemic challenges in venture capital performance that extend beyond individual company selection failures.
The research underscores that startup success requires persistence, strategic acumen, and elements of luck that many ventures fail to achieve. While entrepreneurial failure is widely acknowledged as part of the business ecosystem—particularly in markets like Seattle with significant startup activity—Ghosh's quantified findings suggest that success rates may be materially lower than industry messaging implies. The concentration of losses among venture-backed companies raises important questions for institutional investors regarding capital allocation decisions and fee structures within the venture capital space.
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