Survivorship Bias: Why VC and M&A Chase Ghosts of Success

The Plane That Never Came Back

In World War II, engineers studied bullet holes on returning bombers to decide where to add armour. The wings and fuselage were riddled, so the instinct was to reinforce them. Statistician Abraham Wald saw the flaw: those were the planes that survived. The real danger was in the places with no bullet holes- the engines- because those planes never came home.

In venture capital and M&A, the same blindness persists. We armour our theses and deal models around what “worked” for survivors like Airbnb, SpaceX, Disney-Pixar; while ignoring the graveyard of companies and mergers that never made it back. This is survivorship bias, a silent distorter of strategy that costs investors billions.

The Allure of the Unicorn

The business press worships its winners. Unicorns are paraded as proof of inevitability, and landmark M&A deals are packaged as replicable playbooks. For every Instagram acquisition, thousands of start-ups fade unstudied. For every “textbook” merger, a dozen AOL-Time Warners implode quietly.

The result? VC decks, boardroom debates, and corporate strategy offsites keep circling the same success myths. The lessons from the failures; the planes that never came back, are absent, and that absence is where the real risks hide.

The Blind Spot in Capital Allocation

We’ve seen this pattern repeat like a fractal across decades:

• Dot-com bust: Amazon survives, so capital floods into similar models, ignoring the structural flaws that killed thousands.

• Crypto boom 2021: Bitcoin soars, so VCs pour billions into blockchain start-ups; by 2023, 75% are gone.

• M&A euphoria: Disney-Pixar becomes a benchmark, while the cultural and operational disasters of other integrations remain footnotes.

  
  

Even the most sophisticated dealmakers fall into the trap. They overemphasize the visible traits of outliers- the bold pivot, the magnetic founder, the “synergy math” - mistaking survivorship for strategy.

The Cost of Chasing Survivors

In our sell-side advisory and valuation work, we see the damage first-hand:

• Start-ups set valuations as if every path leads to Stripe-scale dominance.

• Investors underwrite deals using success-case comps, ignoring the silent evidence from the failed ones.

• Corporates overpay for acquisitions because they underestimate cultural fit, integration complexity, and execution bandwidth.

  
  

This is how billion-dollar mistakes are made- not through bad luck, but through bad filters.

A Contrarian Approach to Business Diligence

This approach starts with negative evidence: analysing ventures that failed, integrations that destroyed value, and deals that seemed flawless until reality struck. Diligence frameworks go beyond modelling revenue synergies; they prioritize failure modes like market risk, regulatory hurdles, founder misalignment, and post-merger cultural clashes. In valuation, high-growth outliers are treated as statistical exceptions, not benchmarks.

This method has proven effective in real-world scenarios. For instance, one organization avoided a high-profile acquisition that appeared transformative but risked significant losses due to incompatible engineering cultures. The decision prevented a potential nine-figure write-down.

Beyond the Deal Room

Survivorship bias isn’t just a business flaw, it’s a societal blind spot. We romanticize history by studying victors, erasing the complexity of those who lost.

The cure is simple, but rarely applied: study the graveyard. Value the companies and deals that didn’t make it, not just the ones that did. That’s where the real risk maps are drawn.

The market doesn’t reward those who chase ghosts of success. It rewards those who see the missing planes.