Record-Low Number of Tech Startups Will Be Created in 2019. Why?

Does the economy need another recession to re-start the innovation cycle?

According to Crunchbase data, the number of startups created every year is steadily declining since 2016. At the same time, both the number of investment deals and the total amount of cash powered into startups were growing, so the problem was not on the monetary side. How do we explain this phenomenon?

Figure 1. Startups and Investments, based on Crunchbase data (*as of November 2019, final numbers for 2019 will differ).

Let’s deep-dive into the data to see what is inside these trends.

As the total # of startups grows, what happens with the founded-to-exited ratio?

Maybe, “more startups” does not mean “more exits”? If this was the case, then the growth of the overall ecosystem would lead to a decrease in the founded-to-exited ratio. Such an increase in the competition, in turn, would send a bad signal to aspiring entrepreneurs, discouraging them from starting new companies.

But the data shows a different picture. In 2014–2015, exit numbers were growing. 2016 and 2017 were exceptionally fruitful from an exit…