More startups closed in 2024 than the year before, according to multiple sources, and that’s not really a surprise considering the crazy number of companies that were funded in the crazy days of 2020 and 2021.
It looks like we’re not done, and 2025 could be another brutal year of startups going dark.
britcommerce compiled data from various sources and found similar trends. In 2024, 966 new companies were closed, compared to 769 in 2023, according to Carta. That’s a 25.6% increase. A note on methodology: Those numbers are for US-based companies that were Carta customers and left Carta due to bankruptcy or dissolution. There are likely other closures that would not be explained by Carta, estimates Peter Walker, Carta’s chief ideas officer.
“Yes, closures increased from 2023 to 2024 at each stage. But there were more companies funded (with larger rounds) in 2020 and 2021. So we would wait Closings to increase only by nature of VC naturally,” he said.
At the same time, Walker admitted that it is “difficult” to estimate exactly how many more shutdowns there were or will be.
“I bet we’re missing a good chunk of it,” he told britcommerce. “There are several companies that leave Carta without telling us why they left.”
Meanwhile, Angellist found that 2024 saw 364 startup windingdowns, compared to 233 in 2023. That’s a 56.2% jump. However, Angellist CEO Avlok Kohli has a rather optimistic view, noting that winddowns “remain very low relative to the number of companies that were funded in both years.”
Layoffs. Fyi found a contradictory trend: 85 tech companies closed in 2024, compared to 109 in 2023 and 58 in 2022. But as founder Roger Lee acknowledges, that data only includes publicly reported shutdowns “and therefore represents an underestimate.” . Of those 2,024 tech closures, 81% were startups, while the remainder were public companies or previously acquired companies that were later closed by their parent organizations.
VCS did not choose “winners”
Many companies were funded in 2020 and 2021 at heated valuations with famously thin diligence, which stands to reason that until three years later, a growing number will be unable to raise more cash to fund their operations. Taking investments at too high a valuation increases risk such that investors do not want to invest more unless the businesses are growing extremely well.
“The working hypothesis is that VCs as an asset class didn’t get any better at picking winners in 2021. In fact, the hit rate may end up being worse that year since everything was so hectic,” Walker said. “And if the success rate in good companies remains stable and we finance many more companies, then you should expect many more closings after a few years. And that’s where we are in 2024.”
Dori Yona, CEO and co-founder of SimpleClosure, a startup that aims to automate the closing process, believes that in 2021 we saw a large number of startups receiving seed funding “probably before they were ready.”
Simply getting that money may have set them up for failure, Yona explained.
“Rapid capital infusion sometimes encouraged high burn rates and all-cost growth mindsets, leading to sustainability challenges as markets shifted post-pandemic,” he noted. As such, “in recent years, many high-profile companies have ceased operations despite significant funding and early promises.”
The main impetus behind the shutdowns is obvious.
“Running out of cash is typically the immediate cause,” Walker surmises. “But the underlying reasons are likely a combination of lack of product-market fit, lack of ability to reach positive cash flow and overvaluation leading to inability to continue fundraising.”
Looking ahead, Walker also expects to continue to see more closures in the first half of 2025, and then a gradual decline for the rest of the year.
That projection is primarily based on a time estimate of time since peak funding, which it estimates was the first quarter of 2022 at most stages. So by the first quarter of 2025, “most companies will have found a new path forward or had to make this difficult decision.”
Angellist’s Kohli agrees. “They’re not all dragged down,” he said of startups funded at unreasonably high valuations during those heady days. “Not even close.”
Already this year, we have seen Pandiona Washington-based delivery startup, announces that it was off. The company was founded during the pandemic and had raised around $125 million in capital over the past five years. And in December, ProPtech Easyknock was abruptly shut down. Easyknock, a startup that billed itself as the first technology-enabled home sales provider, was founded in 2016 and had raised $455 million in funding from backers.
Startups dying in all industries, stages
The types of businesses impacted last year were across a range of industries and stages.
Carta’s data points to SaaS companies receiving the most success, accounting for 32% of closures. The consumer followed at 11%; health technology at 9%; fintech at 8% and biotechnology at 7%.
“Those percentages align pretty well with the initial funding for those sectors,” Walker said. “And essentially what this says is that every startup sector has seen stops and none massively surpassed, which lends support to the theory that the main cause of the increase is macroeconomic, that is, changes in the interest rate and the lack of venture financing available in 2023 and 2024.”
Layoffs. FYI’s much smaller subset found that finances accounted for 15% of closures with food (12%) and healthcare (11%) coming in second and third.
When it comes to the scenario, SimpleClosure data found that 74% of all stops since 2023 are pre-seed or seeds, with the majority (41%) at the seed stage.
Most startups tend to fizzle out when the coffers are completely dry, although some see the writing on the wall early enough to give a little back to their investors.
“Most startups (60%) that fail do not have enough capital to return to investors,” Yona said. “Founders planning returning funds have an average of $630,000 of investments remaining, about 10% of total capital raised, on average.”
Yona also predicts that the rate of startup closures will not reduce anytime soon.
“Tech Zombies and a starter graveyard will continue to make headlines,” Yona said. “Despite the crop of new investments, there are many companies that have raised at high valuations and without sufficient income.”