Starting a new company is never easy. In those early years, the process is especially challenging because revenue often falls short of the investments needed to launch from scratch, and a single miscalculation can be fatal. The situation grew tougher with the onset of the pandemic and the sharp drop in consumption and activity that followed.
Recent studies show that one in five companies created in the Valencian Community effectively closed within five years. The figures are higher for businesses established before the covid period, according to a specialist firm cited by Report Database. These numbers reflect the harsh reality faced by startups and the lasting impact of the health crisis on entrepreneurship.
Between 2017 and 2021, a total of 53,915 companies were founded within the region. Of these, 10,556 had already filed for deregistration, entered bankruptcy proceedings, or ceased activity according to the consultant’s information sources. This yields a mortality rate of 19.58 percent, closely tracking the national rate of 19.99 percent for the same timeframe.
In some autonomous communities, the numbers are even starker. Areas like Melilla and Ceuta recorded mortality rates of 29.47 percent and 27.72 percent respectively for startups in the last five years, tied closely to border closures with Morocco which significantly slowed local economies. The Canary Islands follow with a 23.7 percent rate, then Andalusia at 21.3 percent and Catalonia at 20.74 percent.
On the other hand, sectors less dependent on tourism and certain services have shown more resilience. In Extremadura the inactivity rate stands at 15.86 percent, Rioja at 15.91 percent, the Basque Country at 17.04 percent, and Castile and Leon at 17.06 percent. These regions tend to have economic structures less exposed to seasonal fluctuations and more stable demand patterns.
Nationally, the study identifies textiles manufacturing and leather goods as the sector with the highest failure rate among newly created companies, accounting for about 26.19 percent of closures among new constitutions. The hospitality sector also shows elevated mortality, with rates over 24 percent. Trade shows strong gaps as well, with wholesale and related activities approaching the 23 percent mark.
Conversely, the public sector shows a relatively low closure rate at around 4.7 percent. Financial intermediation sees fewer losses at about 11.27 percent, while health services experience losses near 13.56 percent and farming around 15.49 percent, reflecting sectorial dynamics observed in the broader economy.
critical moment
Experts from the business field note that the three-year milestone is often a decisive period for consolidation. The effects of the pandemic have shortened this horizon for many ventures. A robust business plan remains essential, especially when considering cash flow timing. It is critical to account not only for sales but also for collections and payment timing. If payments arrive slowly and cash outlays occur quickly, liquidity problems can emerge and threaten continuity.
Demands of individuals increase the contention of creditors in the province to the historic maximum.
In practical terms, it underscores the importance of prudent resource management in new ventures. A firm needs enough liquidity to withstand delays in receivables and to fund operations while customers settle their accounts.
The report underscores a clear pattern: mortality in the first five years is higher among startups with lower social capital. For instance, companies with 3,000 to 6,000 euros in initial capital show a mortality rate around 21.66 percent, whereas those with more than three million euros in initial funding experience a much lower rate of about 8 percent.
As noted by José María Gómez Gras, the data shows that the highest mortality occurs after a few years. In the national sample, about 45.7 percent of companies founded in 2017 disappeared, and 39.5 percent of those founded in 2018 did not survive. Mortality for firms founded in 2019 dropped to 7.6 percent, while startups born in 2020 and 2021 show losses of 2.75 percent and 1.09 percent respectively.
These patterns highlight the crucial role of capital, cash flow discipline, and long-term planning in turning a startup into a sustainable business. The data from the study is drawn from Informa DB and reflects the concrete outcomes of entrepreneurial effort across different regions and sectors.