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Creating a successful startup is challenging at the best of times, especially in the crypto industry, where an estimated 95% of startups fail.
There <a href="https://cointelegraph.com/news/venture-funds-eye-recovery-2024-capital-remains-tight">have been thousands of crypto startups</a> as the industry has developed. <a href="https://www.crunchbase.com/hub/cryptocurrency-startups" target="_blank" rel="noopener nofollow">According</a> to the business platform Crunchbase, at least 2,619 are operating in various stages of development as of 2024. 
There has also been a fair share of cryptocurrencies, with over 24,000 <a href="https://www.coingecko.com/research/publications/how-many-cryptocurrencies-failed" target="_blank" rel="noopener nofollow">listed </a>on CoinGecko since 2014, but at least 14,039 have died since then. 
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Speaking to Cointelegraph, Robert Hoogendoorn, the head of content at blockchain analytics platform DappRadar, said the reasons for failure with crypto startups can be multifold, ranging from a lack of funding and investments to poor product market fit, wrong marketing or a technically flawed product.&nbsp;
However, one of the fundamental reasons he says crypto startups can fail is that building a successful startup is tough regardless of the industry.
<a href="https://explodingtopics.com/blog/startup-failure-stats" target="_blank" rel="noopener nofollow">According</a> to Exploding Topics, up to 90% of startups fail across almost all industries. In the first year, the average failure rate is around 10%, rising significantly from there. 
“Now translate this general market data to crypto, and the challenges get a lot bigger; the crypto market is highly volatile, and we just came out of the longest crypto winter,” Hoogendoorn said.
“There are various teams in Web3 building great products, and some of them survived one or even two bear markets. However, there are also organizations that had poor financial management or simply not enough money and had to close their doors,” he added.
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Bear markets can also prove fatal for crypto startups. The latest <a href="https://cointelegraph.com/news/crypto-bitcoin-is-not-longest-ever-bear-market">bear market and crypto winter</a> began in 2022. Five others have preceded it, lasting between five months and two years.&nbsp;
In these cycles, Hoogendoorn says, “investors tend to be less risky,” which makes it harder for businesses to find funding and stay afloat. In addition, Hoogendoorn thinks, “finding product market fit in Web3 isn’t easy.”
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 “Product development, marketing, cash flow; these things all need to be reinvented to make it in Web3.”
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“On top of this comes the speed of innovation; Web3 developments happen so fast the competition launches a better product than you do within weeks. This is exactly what makes Web3 exciting but also very challenging for startups and founders,” he added.
At the same time, despite the high failure rate, Hoogendoorn thinks the future looks bright for some crypto startups, thanks to an increase in the “amount of talent moving into this industry,” resulting in better products, better user experiences and easier onboarding.
Related: <a href="https://cointelegraph.com/news/vc-roundup-vcs-returning-crypto-february-suggests-renewed-confidence">VC Roundup: Are VCs returning to crypto? February suggests renewed confidence</a>
Hoogendoorn predicts that while the high attrition rate for crypto startups will likely claim more businesses in the long run, the natural life cycle will see some rise to the top as tech juggernauts. 
“As the industry grows, many more startups will have to close their doors, but some will grow and become the PayPal, Uber or Doordash of Web3, offering innovative products that help consumers reach their goals through smooth interfaces and easy user experiences,” he said. 
<h2 data-ct-non-breakable="true" id="market-volatility-and-hype-cycles-hurt-crypto-startups-as-well">Market volatility and hype cycles hurt crypto startups as well</h2>
Crypto markets are <a href="https://cointelegraph.com/news/why-is-bitcoin-price-volatile-today">well-known for their volatility</a>, where large price swings help investors create or lose fortunes in a lightning-fast fashion.
According to James Hallam, <a href="https://cointelegraph.com/news/centralized-exchanges-gateways-defi-dxdy-foundation-ceo-charles-dhaussy">head of business development at dYdX Foundation</a> — an independent decentralized finance (DeFi) nonprofit — volatility and rampant speculation frequently lead to startups built on unsustainable hype rather than solid business fundamentals. 
“Most importantly, the success of crypto startups is critically dependent on the team’s ability to execute their vision,” he said.
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 “Many crypto startups falter due to a lack of clear direction, failing to pivot or adapt in a rapidly changing environment.”
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From the late 1990s until the early 2000s, internet-based companies were the subject of massive hype and investment as well. The sector peaked at a value of $2.95 trillion before slumping to $1.195 trillion as capital dried up and investors left in droves, causing many companies in the industry to go bust.
Related: <a href="https://cointelegraph.com/news/ethena-labs-secures-14-million-funding-synthetic-dollar">Ethena Labs secures $14M in funding for synthetic dollar</a>
According to Hallam, these lessons can provide crucial data for crypto startups to weather the harsh winters and bear markets.
“If teams can understand the lessons of history and prioritize achieving product-market fit over succumbing to the allure of hype, this will pave the way for more resilient and innovative ventures in the crypto industry,” he said. 
“Crypto startups should draw on the historical experiences of Web2 companies, which faced the formidable challenge of launching innovative technologies while attempting to achieve product market fit,” Hallam added.
<h2 data-ct-non-breakable="true" id="lack-of-clarity-and-experience-can-also-lead-to-crypto-doom">Lack of clarity and experience can also lead to crypto doom</h2>
Fraser Edwards, the co-founder and CEO of decentralized data infrastructure provider cheqd, believes that aside from the already mentioned reasons for crypto startup failures, the crypto market is still in an “experimental phase” as people figure out what works, often through trial and error.
Edwards told Cointelegraph that other factors that could cause crypto startup failures include a lack of focus on solving real problems and neglecting revenue building. 
“There is still a big focus on building cool tech but without ever thinking if it’s solving a real problem. Often, the tech gets built before any market validation has been done,” he said. 
“Many projects believe that marketing is having a nice logo and a set of influencers to ‘shill’ their token; there’s no real strategy on basic activities such as SEO, content production or effective PR.”
Related: <a href="https://cointelegraph.com/news/where-crypto-can-grow-digital-asset-regulations-around-the-world">Where crypto can grow: Digital asset regulations around the world</a>
According to Edwards, a lack of clarity around crypto regulations, especially in the United States, can lead to uncertainty in the market as well, preventing customers and end-clients from adopting the tech, which in turn makes the startups go bust. 
Since Bitcoin’s (<a href="https://cointelegraph.com/bitcoin-price">BTC</a>) 2008 white paper went public, the legal status of the crypto industry has been the subject of debate, legal action and no small amount of angst from governments.
A Dec. 19, 2023, PricewaterhouseCoopers report <a href="https://www.pwc.com/gx/en/industries/financial-services/crypto-services/navigating-the-global-crypto-landscape-with-pwc-2024-outlook.html" target="_blank" rel="noopener nofollow">found</a> that 42 countries discussed or <a href="https://cointelegraph.com/news/stablecoin-laws-25-countries-legislation-2023">passed crypto regulations and legislation</a> in 2023. However, many still lack a clear regulatory framework. 
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At the same time, Edwards thinks some of the failed crypto startups may very well have been created to fail, with <a href="https://cointelegraph.com/news/rug-pulls-audits-report-hacken">rugpulls and other scams</a> contributing to the “significant turnover” in crypto startups.&nbsp;
Rug pulls occur when a startup solicits capital from investors only to cease operations and vanish, absconding with the funds. Often, rug pulls in crypto involve selling a token, which ultimately becomes worthless after the business shuts down. 
A lack of differentiation can also contribute to failures because there is a “huge amount of innovation, especially at the network layers.”
“This means you have entire ecosystems being built upon protocols which are then superseded by better tech,” Edwards said. 
“Related to this, a lot of companies and offerings are not differentiated beyond the protocol they are built upon,” he added.
Overall, Edwards says one of the biggest challenges facing crypto startups is that they often lack people with experience in the business world and the ability to create successful products. 
Related: <a href="https://cointelegraph.com/news/biotech-ai-climate-tech-sectors-startups-web-summit-qatar">Biotech, AI and climate tech are booming sectors for startups — Web Summit Qatar</a>
“Although this has been improving every year, there are still a lot of projects that ignore business values and etiquette such as having a mission and vision, planning for long-term token and network utility, being punctual and setting commercial objectives,” Edwards said. 
“A big factor that feeds into all the above is that crypto is still a young industry, and it is not unusual to find people who have never worked in other industries. This means they haven’t had a focus on revenue and sustainability drilled into them.”

Moon or doom: Why do so many crypto startups fail?

Daftar Isi

Cointelegraph

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