Why so Many Midstage Startups Fail to Raise the Next Round
It’s estimated that after receiving seed funding, roughly half of midstage startups will fail to reach each subsequent round of fundraising. That means only a small fraction survive long enough to raise a Series C or D. But why are so many startups losing momentum in the midstage and struggling to survive? There are a lot of reasons why this happens, but on the bright side, there are just as many ways to avoid this fate.
On this week’s edition of the Midstage Momentum Podcast, Roland Siebelink of the Midstage Institute outlines the best ways to enhance a startup’s chances of surviving the midstage and finding success.
- What are the five drivers of midstage momentum?
- What does it mean to have a roundtable of accountability?
- How do you put together a midstage master plan?
- How to get your company into an unassailable market position.
- Why leaders should want CEO to mean Continually Educating Officer.
How does your startup reach more momentum in the mid-stage?
Hello, my name is Roland Siebelink and I’m the founder and CEO of the Midstage Institute. We started the Midstage Institute to help startups in the mid-stage that are losing out on their momentum or not maintaining enough momentum. And surprisingly there’s many, many startups in that situation.
In the press, we all hear these stories about the explosive growth of startups, which we got to realize, that is just the tip of the iceberg, right? There’s many other startups that have successfully reached a seed funding and then fail to raise a Series A, a Series B, or a Series C. Many founders don’t even know how high the failure statistics are. About half of startups at every single round fails to reach that next stage. And so, that means that by Series C, you’re looking at just about 12% of startups surviving from the seed stage, and Series D goes even lower.
What are some of the root causes that we see? Well, many startups are just not reaching their growth projections. They may have been overly optimistic. They may not have understood the market. There’s a lot we can do around that. Losing agility, the inability to innovate a lot makes you lose the next wave or makes you stick with an older product for too long.
Often, both of these lead to unresolved team tensions, often between co-founders, often between product and engineering on the one hand, go-to market on the other hand. And ultimately, a startup that is floundering that way can run out of investment options and have no positive options on the table anymore. Often, that then leads to premature leader replacement, which in more cases than not actually signs the death warrant of the startup.
What are the five drivers? In working with mid-stage startups, we have found that focusing on just five drivers can vastly increase the chances of mid-stage startup success. First - and this may seem obvious - is an aligned team. A team that really discusses the issues and has decided jointly on what the key priorities are for the company at large and not just for every function. Second, a focus strategy. Moving away from exploring all these options and really exploiting the parts of the market that you have found to work already.
Practice delivery. That is not to say we go into detailed processes. But it does mean that we learn from what we experiment with. We drive up the learnings and we make sure that these can be delegated to new people coming on board.
Leveraging interests. Making sure that there’s enough interest to invest in a company or to become customers and playing these parties out against each other.
And finally, authentic leadership where leaders find their true authentic self and don’t just try to model another executive that they have found.
We’ve bundled this together in one solution called the Mid-Stage Momentum Method. The five key levers that we propose to startups are to start a round table of accountability, where the whole leadership team comes together and really agrees on priorities, as well as behaviors between themselves. That then leads to a Momentum Master Plan. Listing the priorities, listing the positioning in the marketplace, and all the strategic choices that have been made. Think of it as a strategy on one page that really helps the team at large to stay on one page.
The Mid-Stage Manual is our tool for cascading and delegating procedures, processes, and decisions to the lower levels, so middle managers and below can start marking the Mid-Stage Manual, making it your own and thereby setting up a whole knowledge repository, so that people don’t have to keep asking their boss - let alone the CEO - what to do.
Finally, a mighty market position is the ultimate goal of the strategy. How do we get your company into an unassailable market position where no investor - but also no customer - can deny that they would really love to work with you.
And finally, as a leader, can your CEO title mean “continuously educating officer?” In other words, can you be the CEO that is continuously educating and learning about themselves but also continuously educating and teaching to the rest of the organization? Getting that learning mindset going and keeping it alive is a huge and crucial lever in order to increase our chances of mid-stage momentum.
How do we get started? Well, first of all, please check out our website at www.midstage.org, where you’ll find tons of free and easily accessible resources, such as the whole Mid-Stage Manual that your team can start marking up today.
Second, if you’re ready to get going, then set up a discovery call where you’ll talk with one of our coaches around the world who can help your mid-stage startup figure out what the big key priorities are and where to really invest your time at first.
And then third, most likely we will start working on should we book a workshop? A workshop where you bring together the top team, learn all these concepts simultaneously, and make sure that your whole team gets aligned around accountability, around the Momentum Master Plan, Mid-Stage Manual, the mighty market position, as well as about continuously educating yourself as well as your people.
This is the Mid-Stage Momentum Method packaged in a few minutes. Lots and lots more to find out on our website and beyond. But so far, thank you for listening. I’m looking forward to hearing from you soon.
Roland Siebelink talks all things tech startup and bring you interviews with tech cofounders across the world.