Many Startups are Destined to Fail, 3,200 VC Backed Startups Are Out of Business Follow Dec 07, 2023 · 2 mins read
Many Startups are Destined to Fail, 3,200 VC Backed Startups Are Out of Business
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A growing number of once-promising tech startups are shutting down or selling themselves for cents on the dollar as investor enthusiasm wanes after a decade-long boom. Companies across sectors that raised billions in venture capital are running out of options amid a harsh reality - VCs now want results over hype or potential.

According to Pitchbook data, around 3,200 U.S.-based startups backed by venture capital have failed this year alone, collectively valued at over $27 billion. However, experts say this likely underestimates the carnage as many companies fail quietly. Those still operating often subsist in “zombie mode”, struggling to grow or raise additional funding.

Some major unicorns borne of the recent bubble have either gone bankrupt, like real estate company Zeus Living and payments provider Plastiq, or sold for remarkably little, like virtual events platform Hopin which moved its core business for $15 million after attaining a peak valuation of $7.6 billion. Others, including scooter firm Bird, have seen share prices plunge to a fraction of former highs.

The years-long funding bonanza that minted over 1,000 unicorn startups and turned venture capital mainstream is now seeing serious repercussions. Investors pumped over $344 billion into U.S. startups the past decade - eight times 2012 levels - chasing the outsized returns of Facebook and Google. However, this new generation has largely failed to replicate their advertising profits or find truly groundbreaking models, disappointing backers.

With easy money drying up thanks to rising interest rates, failures are soaring and zombie companies living on borrowed time. Venture capitalists are now deciding which to double down on and which to jettison, telling some founders to wrap up operations before capital fully dwindles. An increasing number choose to close shop themselves and return a portion of funds rather than fight vainly.

According to entrepreneurs and VCs, accepting failure amidst this challenging climate can be difficult but also freeing. The hope is that winding down responsibly now leaves room for future success stories when conditions improve. For the startups assisting others in their closures, business is booming. But it is part of the natural cycle in Silicon Valley. As one operator put it, many founders are already working on their next ventures.

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