Why Most Startup Failures Aren't Actually Failures

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📰 Today's topic: Why most startup failures aren't actually failures

Startup ‘failures’ get a bad rap.

When a company shuts down, the narrative is usually the same:

“Bad founder” or “wrong market” or “poor execution.”

Or all of the above, and then some.

Most startup content celebrates wins. But I’ve been a part of 200+ investments, and the reality is that most don't make it.

And to highlight the actual reasons why most startups fail, we’ll dive into three case studies of companies I’ve invested in.

All had traction. All solved real problems. All shut down.

Case #1: When a great product meets tough market conditions

A hardware startup had raised $13.5M to build high-resolution LiDAR for autonomous vehicles.

The technical risk was real, and there were valid concerns as to whether they could actually build what they were promising.

Sure enough, they did. The product worked, and they had major automakers running pilots with it.

So… where’s the kicker?

Well, they needed massive capital to scale manufacturing. Automotive sales cycles take years, and getting embedded in a 2030 vehicle model meant surviving until then.

Fast forward shortly after - capital markets tightened, and companies abandoned experimental programs like autonomous driving.

The team had built something valuable, but the market simply wasn't ready to buy it at scale.

Lesson #1: Market timing always beats technology.

Case #2: When growth outpaces operations

A food delivery startup had incredible traction.

Customers loved it, COVID accelerated growth, and the team was on a path to hockey stick trajectory. But, soon enough, there was a difficult truth to be confronted.

The unit economics never worked.

When capital is cheap, a lot of founders feel the urge to ignore the math. It becomes "grow at all costs" instead of "nail it then scale it."

Simply put, they continued scaling without figuring out a path to profitability. (Which ultimately always leads to a point where the music stops.)

Lesson #2: Raising too much money isn’t always a good thing.

Case #3: When distribution works, but not the product

An insurtech SaaS startup had a massive competitive edge in domain expertise.

The founder knew this industry inside and out. It took them to early traction, 6x revenue in 9 months, and the team was closing every demo call they got on.

But, customers were onboarding and then churning - and the team could not figure out why.

The founding team was mostly non-technical, and was bottlenecked on shipping fast enough to uncover what was making customers unhappy.

SaaS also lives and dies on retention. A leaky bucket means running on a treadmill that speeds up every month.

Eventually, the team opted to keep the lights on at minimal cost while exploring opportunities for an acquisition.

Lesson #3: There’s a razor-thin balance between growth and product.

Why I tell you this

Typically, companies don't fail because “the founder was bad.” It’s never that simple.

They fail because timing is off, capital dries up, or one critical variable breaks before you can fix it.

One thing I ask myself now when I meet with a founder: “Can this founding team solve problems faster than new problems appear?”

Why this matters as an investor

If you're writing small checks across a lot of companies, an individual failure won't tank your portfolio.

This is exactly why I diversify across market risk vs. technical risk, different industries, founder archetypes, and stages.

Venture math is simple: one home-run winner can cover 99 companies that go to zero.

And your job as an investor isn't to avoid failures. It's to take enough shots to maximize your surface area for a winner.

– Brian from Angel Squad

🍫 A snack for the road: You’re invited to a 10 Minute Blitz with us and Melissa Perri

Most people know Melissa Perri as a product superstar.

After years of helping teams at Walmart, Capital One, and J.P. Morgan, she realized something big…

Product leaders make phenomenal angel investors.

While everyone else was squinting at spreadsheets, Melissa started taking her product mindset and applying it to early-stage investing - using frameworks, not vibes, to figure out which founders are onto something meaningful.

Now, she’s joining us this Thursday for a 10-Minute Blitz to break it down.

If you’re a Product Leader thinking about angel investing (or just love hearing how experts think), you’ll want to be there.

Overheard in SF…probably

“We're the Netflix of dog grooming, the Airbnb of laundromats, and the Shopify of tax preparation all rolled into one.”