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Fighting slowing growth in European start-ups

There is an opportunity for company builders that create a support environment for start-up and fledgling companies by providing business support and mentoring as well as offering access to professional networks during the early stages of growth. Studies conducted by international institutions such as the OECD or World Bank confirm that most start-ups are launched by aspiring entrepreneurs who have had no previous experience, possibly even little exposure to a mature corporate environment. Such companies are not planned appropriately, markets are not assessed, products not commercialized, marketing not adequate or imaginative, and good corporate governance frequently lacking. While these business might be pitchable to investors, they are often neither investable nor bankable which leaves investors and founders frustrated on both sides of the table.

Apart from being unable to match capital demand and supply, this situation nurtures common hearsay that 90% of all start-ups fail. However, in one of the few available long-term analysis infant companies of success rates, Kraeussl and Krause (2011) confirm that young firms have a higher risk of failure across all sectors and geographies but that the average survival rate of start-ups was rather 34% and for technology-driven companies even 39%, a fact that should be taken into account when determining the cost of capital in a fundraising pitch or a start-up valuation. Furthermore, it is notable that start-ups have only outperformed mature companies in the period of 1985 to 1999 and only in three sectors, US electronics and in European biotechnology and media. Since then, mature businesses in Europe were double as successful as start-ups while in the US the gap is less significant but in biotechnology and life sciences.

This leave ample opportunities for companies that can teach start-ups how to sell and deliver services in a cost-efficient way, so they can move toward addressing customers’ problems and processes holistically which will increase survival rates and open access to instutional funding and venture debt from banks. Company builders which stay engaged with the start-up over a longer period of time, will be key to keep their siblings shifting focus from their own processes, incentives, and structures to those of the customer thus becoming a true value investor.


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