What is the Death Valley Curve?

The Death Valley curve is the period between when a startup company receives funding and when it begins to generate positive cash flow. During this period, because of the lack of cash flow, it is quite unlikely that the firm can obtain any additional funding, and so is at maximum risk of failure. During this time, the firm’s business model has not yet been proven, so investors are unwilling to put any more money into its operations.

The term describes an actual downward curve in the remaining cash balance, where substantial initial startup costs are incurred, thereby sharply dropping the amount of cash on hand. Examples of these startup costs are legal fees, research and development, and customer acquisition expenses. An investor needs to closely monitor and provide advice to a startup during this period, in order to increase the probability of gaining any return on investment.