Tech Startups Close or Downsize as Funding Declines by 49%

The startup world is facing a historic slump with a venture funding drought threatening hundreds of previously funded businesses.

Investors have sharply cut back on funding for tech and early-stage startups in the United States, leading to a 49% decline in tech startup funding in the year ended June 30, The Wall Street Journal (WSJ) reported Friday (Aug. 11).

The drop has resulted in a steady stream of venture-backed companies being forced to shut down or downsize in recent months, according to the report.

Just a few examples include payments processor Plastiq filing for bankruptcy in May after an aborted merger with a special purpose acquisition company (SPAC), biotechnology startup Goldfinch Bio winding down earlier this year after failing to raise more money, and sports platform Buzzer shutting down in June, the report said.

Another business that has suffered as a result of this investor insecurity is Poparazzi, a photo-sharing app backed by venture firm Benchmark, which closed, and virtual events startup Hopin, which has sold its main business for $15 million despite raising almost $1 billion in less than a year, per the report.

“In the next 12 months, we’re going to see a lot more companies go out of business,” said Jenny Fielding, managing partner at Everywhere Ventures, per the report

Lee Edwards, general partner at Root Ventures, said that “[i]nvestors will still take a flier on a team and a dream, but it’s a little less common than before.”

Amid the funding drought, several initiatives have been launched to help startups.

On Wednesday (Aug. 9), Amazon Web Services (AWS) introduced AWS Build, a program that offers business and technical guidance — plus some funding — to early-stage startups. The company will help them use its tech stack to launch their products.

PHX Ventures announced Aug. 3 an over-subscription of its second fund at $25.4 million to invest in Arizona’s high-growth B2B software companies. The fund will lead or co-lead seed rounds of $1 million to $5 million for ambitious startups.

On the same day, Airwallex joined forces with venture investing platform OurCrowd to make it easier to invest in startups. The partnership lets institutions and individuals invest in startups anywhere, with their local currency and with a single click.