Nine out of every 10 startups that raise money end up failing over a 10-year period. Observers believe that venture-backed startups fail at higher numbers than the industry usually cites.
Although far more businesses fail than eventually succeed, the process of shutting down a company can often be a daunting and frustrating experience.
“As a founder you never stop to think about what happens if things don’t work out,” Dori Yona, co-founder and CEO at SimpleClosure, told PYMNTS. “It’s not that people don’t shut down. It’s that people don’t like talking about the fact of shutting down or even mentioning it, it’s almost as if it’s taboo.”
“But as a founder and entrepreneur, you’re probably in the most stressed point of your career, and all you want is help and transparency and visibility,” Yona added.
He explained that even though between 700,000 and a million companies shut down every year in the U.S., when a founder is asked to wind down their business, “the feeling during that process is typically, ‘am I the first business in America to shut down?’”
The lack of immediate resources frequently turns shutting down a business into a painful and bureaucratic exercise. These inherent frictions are further amplified by the process’s opacity and the fact that many founders are going it alone.
Failure to do any steps properly, like paying vendors, sunsetting insurance and benefits, letting employees go, establishing a closure timeline, and much more, can often lead to penalties and fines years later.
“If you think about a company shutting down, not only is the company impacted, there’s a halo effect of many other entities and service providers and vendors that are impacted, like vendors, customers, the HR provider, the bank, the IRS, the state regulators, the investors, the list goes on,” explained Yona.
That’s why he founded SimpleClosure, to simplify the process and provide founders and the broader startup ecosystem with the guidance and resources they need.
“VC money is drying up. There’s not a lot of funding out there, a lot of companies are overvalued compared to the money they need now,” said Yona. “There’s an opportunity to serve the ecosystem.”
“And there’s a lot of excitement also from potential partners of taking advantage of great talent, great companies that have IP, patents, trademarks, great teams, and are looking for a smooth landing,” he added.
Winding down and dissolving a company in a way that allows founders, investors and stakeholders to feel confident that they have shut down their company the right way is a complex endeavor, no matter how you slice it.
That’s why SimpleClosure’s platform takes advantage of advancements in technology, such as FinTech, legal tech, and artificial intelligence (AI) innovations, to automate and scale the process of dissolving a company, making it more efficient and cost-effective — particularly for founders who often don’t have significant financial resources.
“The technologies that exist today enable us to be able to build a platform like this at scale. Traditional firms have dealt with this and have been running this business for decades, but they take a manual and white glove approach, and they charge much more,” Yona said. “We can leverage FinTech, AI and legal tech to automate these historically manual processes.”
Traditional shut-down firms also typically serve much larger clients. Smaller and medium-sized businesses (SMBs) are often left to their own wits and devices when winding down.
“Ninety-eight percent of the market typically has to shut down on their own,” added Yona. “Everyone has been kind of quietly suffering with this.”
As for what the SimpleClosure founder is looking forward to most?
“It is really about how, long-term, we can make this a platform play for the broader startup ecosystem and not just a product focused on serving the founder that is shutting down. We want to serve the ecosystem by building a platform that gives back to the ecosystem when companies shut down by being part of a cycle. There are just a lot of opportunity to make the shut down experience painless while providing the best possible outcome,” Yona said.