There are 3 major trends that have driven startup formation over the last 7 years.
First the cost of infrastructure, thanks to AWS has dropped from hundreds of thousands of dollars to hundreds of dollars – 3 orders of magnitude.
Second, the number of seed investors has gone up 5 fold, from 35 to over 250 now.
Third the number of accelerator programs has gone from < 10 to over 635 in the US alone.
The number of startups in technology has remained though constant, at about 20K to 30K per year from the US alone. There has been a slight increase, but not by much. So what gives?
Some questions – has the failure rate increased? The anecdotal evidence is yes, but the real data is inconclusive.
Are startups talking more time to mature? I call maturity as time to get to series A from the time they were formed. If you look at 2007 data, the time to get to VC series A funding (crunchbase data) was 2.2 years.
If you look at 2014 data, the time to get to series A has dropped to 1.6 years.
The size of the rounds have gotten higher, as startups are taking in more money.
The number of side projects (indicated by participation in hackathon’s, which is a proxy but not an easy to measure metric, has increased dramatically by 400%.
So, AWS has allowed you to really reduce the cost of experimenting, more than building a startup alone.
If you look at 2007 data and see the number of seed funded companies that got VC funding as a percentage, the % has reduced by 2014 – largely because there are a lot more companies getting seed funding.
The real difference is the accelerators in the US – they have gone from bringing out 250 companies in 2007 to over 2000 in 2014.
That’s the big (4 times the number of early stage companies) change from 2007.
Accelerators are causing the glut in startups getting in front of institutional investors more than angel funds.