More startups closed in 2024 than the previous year, according to multiple sources, which isn’t a surprise considering the crazy number of companies funded in the crazy days of 2020 and 2021.
It feels like we’re almost not done, and 2025 could be another brutal year of startups shutting down.
TechCrunch collected data from several sources and found similar trends. In 2024, 966 startups closed, compared to 769 in 2023, according to Carta. This is an increase of 25.6%. One note about the methodology: These numbers are for U.S.-based companies that were CARTA customers and left CARTA due to bankruptcy or dissolution. There will likely be other closures that won’t be accounted for by Carta, estimates Peter Walker, head of Carta Insights.
“Yes, closings increased from 2023 to 2024 at each stage. But there were more companies funded (with larger rounds) in 2020 and 2021. So we are doing expected He said that the closure to increase the nature of VC naturally.
At the same time, Walker admitted it was “difficult” to estimate exactly how many closures there are, or will be.
“I bet we’re missing a good piece,” he told TechCrunch. “There are a number of companies that are leaving Carta without telling us why they left.”
Meanwhile, Angellist found that 2024 saw 364 WHORDDOWNS Startups, compared to 233 in 2023. That’s a 56.2% jump. However, Avlok Kohli, CEO of Angellist, is somewhat optimistic, noting that the virus cut is “still very low relative to the number of companies funded over the two years.”
Layoffs.fyi found a contrasting trend: 85 tech companies closed in 2024, compared to 109 in 2023 and 58 in 2022. But as founder Roger Lee admits, this data only includes publicly reported closures and thus represents less than “It’s like her.” Of those 2024 technology closures, 81% were startups, while the rest were either public companies or previously acquired companies that were later shut down by their parent organizations.
VCS did not select “winners”
So many companies were funded in 2020 and 2021 at hot valuations with famously thin diligence, that it makes sense to hit three years, after a growing number were unable to raise more cash to fund their operations. Taking an investment at a valuation higher than that increases the risk that investors will not want to invest more unless the business grows very well.
“The working hypothesis is that the VCS as an asset class hasn’t improved at picking winners in 2021. In fact, the hit rate may end up being worse that year because everything has been so positive,” Walker said. “And if the success rate of good companies stays flat and we fund a lot of companies, you should expect more closures after a few years. And that’s where we are in 2024.”
In 2021, we’ll see a large number of startups receiving seed funding “maybe before they’re ready,” believes Dory Yona, CEO and co-founder of SimpleClosure, a startup that aims to automate the closing process.
Yona explained that having this money set them up for failure.
“Rapid capital infusions have sometimes encouraged high burn rates and an all-around growth mindset, leading to sustainability challenges as markets transition post-mortem,” he noted. As such, “in recent years, several prominent companies have ceased operations despite significant funding and early promise.”
The basic momentum behind the closure is a clear one.
“Running out of cash is usually the proximate cause,” Walker notes. “But the underlying reasons are likely a combination of lack of product market fit, inability to access positive cash flow, and excessive value leading to an inability to continue fundraising.”
Looking ahead, Walker also expects we will continue to see more closures in the first half of 2025, then a gradual decline for the rest of the year.
This projection is mostly based on estimating the missing time from peak funding, which is estimated to have been the first quarter of 2022 at most stages. So by the first quarter of 2025, “most companies will either find a new path forward or have had to make that difficult choice.”
angellist Cooley agrees. “Not all of them are washed up,” he said of the startups he funded at absurdly high valuations during those heady days. “Not even close.”
Already this year, we have seen Pandiona Washington-based delivery startup, announces that it has been closing. The company was founded during the pandemic and has raised about $125 million in equity over the past five years. And in December, Proptech Easyknock suddenly closed. EasyKnock, a startup that bills itself as the first technology-enabled residential selling provider, was founded in 2016 and has raised $455 million in funding from backers.
Startups die across industries and stages
The types of companies affected last year were across a range of industries and stages.
Carta data indicates which enterprise SaaS companies are having the most success – making up 32% of closings. Consumer follows 11%; health technology by 9%; fintech at 8%, and biotech at 7%.
“These percentages align well with the initial funding for those sectors,” Walker said. “And what this basically says is that every startup sector has seen a shutdown and nothing has outperformed, which gives support to the theory that the main reason for the increase is macroeconomic, i.e. changes in interest rates and lack of available venture funding in 2023 and 2024.” “
A much smaller subset of FYI found that finance represented 15% of closings with food (12%) and health care (11%) coming in second and third.
When it comes to stage, SimpleClosure data found that 74% of all closures since 2023 are either seed or seedling, with a plurality (41%) at the seed stage.
Most startups tend to close when the tanks are completely dry, although some see the writing on the wall early enough to give their investors back a little.
“The majority of startups (60%) that fail do not have enough capital to return to investors,” Yuna said. “Founders planning on returning funds have $630,000 of investments remaining — about 10% of the total capital raised, on average.”
Yona also predicts that the startup closing rate will not slow down anytime soon.
“Tech zombies and the startup graveyard will continue to make headlines,” Yuna said. “Despite the crop of new investments, there are too many companies raised at high valuations and without sufficient revenues.”
