New Technology-Based Firms: Their Failure Rates and Reasons for Failures

Abstract

Failure rates are estimated from a sample of new technology-based firms established in 1997/98 and evaluated by professionals as being feasible ventures, recommendable for early financing. It is found that, as of 1993/94, nearly 70% of the firms had failed and that several of the sustaining firms were in poor shape. It is concluded that the rate of survival is not significantly lower for these firms than for the new tech enterprises that have not been screened at early stages. Reasons for failure are discuss by reference to a number of case analyses. Typically it is found that a combination of factors interact to cause failure, that the chances for firm survival, at an early stage of development, could be characterized as a stochastic process, and that technology-based strategic planning is essential for success.

Keywords: New Firms, New Technology, Failure Rate, Bankruptcy, Innovation

JEL Classification: M13, O31, O32