Private-equity funds want to spend their clients' capital on startups with favorable odds for exceptional financial returns. But 90% of startups eventually fail, according to Startup Genome, highlighting extreme risk that balances the prospect of enormous profits. To improve their odds, these firms perform due diligence, identifying and discarding proposals from that majority, while they look for the next big thing.
With that in mind, let's examine five common reasons most startups fail.
Don't Miss:
- Be part of the next med-tech breakthrough for only $350 — 500+ surgeries already done with nView's AI system.
- Invest where it hurts — and help millions heal: Invest in Cytonics and help disrupt a $390B Big Pharma stronghold.
Mode Mobile developed a smartphone called EarnPhone, which allows users to earn and save money by playing video games, listening to music and reading the news. With the phone priced at an affordable $99, the barriers to adoption are low.
Earning Opportunity for All Smartphone Users
Mode EarnPhone
State-of-the-art smartphone device includes built-in earning features.
EarnOS
Proprietary earning software turns smartphones into EarnPhones.
Lack of Demand
Startups need to prove the market needs them. They may have great ideas that would make Einstein blush but lack grounding, direction or the demand needed to scale into major production. This proof requires detailed demographic and industry studies that explain how the startup can capitalize upon that market. A review of scaling issues and opportunities is also needed. For example, if 5,000 customers buy their innovative product or service, can they prove a similar market for 50,000, 500,000 or 5 million?
Cash Burn
Startups rely on seed capital from investors who are looking for progress as their business plans unfold. When an enterprise hits an inevitable roadblock or delay, some funds may bail on the next cash infusion, leaving the startup with insufficient capital to successfully accomplish its short-term goals. This is especially critical if the startup underestimates customer acquisition costs, which can burn cash faster than product development.
Trending: Maximize saving for your retirement and cut down on taxes: Schedule your free call with a financial advisor to start your financial journey – no cost, no obligation.
Better-Positioned Rivals
Major market opportunities attract major competition. For example, startups focused on AI cinema creation have saturated the space in 2025, yielding competing technologies and business concepts. Markets will eventually settle on the most popular approaches, but the majority will probably get left behind. The battle between VHS and Betamax in the 1980s video format wars offers a perfect example of this tech adaptation process at work.
Bad Business Model
A comprehensive business plan is the first job for entrepreneurs seeking private-equity fund capital to pay for their startups. A flawed plan not supported by a mountain of data, spreadsheets and demographics can doom the startup before it gets off the ground. Even worse, flaws may not show their power until after the product or service moves into production, increasing investment risk.
See Also: Are you rich? Here’s what Americans think you need to be considered wealthy.
For example, Beyond Meat BYND went public to great fanfare in 2019, rallying into triple digits. The stock now trades around three bucks, with plummeting consumer demand for plant-based meat alternatives. In addition to a bad call on consumers, Beyond also underestimated the public's rejection of questionable ingredients, including methylcellulose, canola, palm oil, and sorbitol in their ‘healthy' products.
Poor Decision-Making
Startups are living organisms, requiring constant attention to redirect goals and allocate resources. It's a group project performed by many talented folks, but the corporate structure may place too much power in too few hands. At the top of the list: business decisions made solely by founders that lack group vetting. This my-way-or-the-highway approach can lead to dead ends, detours and cash burn that portends disastrous outcomes. After all, not everyone is Steve Jobs or Elon Musk.
Read Next: Can you guess how many retire with a $5,000,000 nest egg? The percentage may shock you.
Image: Shutterstock
Edge Rankings
Price Trend
© 2025 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
