3,200 VC-Backed Companies Go Under in ‘Difficult Year’ for Startups

Investors in America’s tech startup sector are bracing for a collapse.

That’s according to a report Thursday (Dec. 7) by the New York Times (NYT) which chronicles the rise and fall of a number of once high-flying companies — WeWork, Convoy, Olive AI — that have either filed for bankruptcy or closed up shop in recent weeks.

It’s part of a broader trend, the report says, of tech companies running out of time and funds as venture capital firms begin to cut their losses. This situation has led to what the NYT dubs a “cash bonfire,” using the example of virtual events provider Hopin — once valued at $7.6 billion — selling its main business for $15 million.

“As an industry, we should all be braced to hear about a lot more failures,” Jenny Lefcourt, an investor at Freestyle Capital, told the newspaper. “The more money people got before the party ended, the longer the hangover.”

According to the report, data from PitchBook shows approximately 3,200 venture-backed firms in the U.S. have gone out of business. Those startups had raised $27.2 billion. The report notes the 3,200 figure was probably on the low side, as many businesses shut their doors quietly.

Carta, a company that provides financial services for Silicon Valley startups, said 87 of the firms on its platform that raised at least $10 million had shut down this year as of October — double the amount for all of 2022.

This has been “the most difficult year for startups in at least a decade,” Peter Walker, Carta’s head of insights, wrote on LinkedIn.

PYMNTS has been examining this trend this year in the monthly “Pivot to Profitability” series, a collaboration with Sezzle.

“We had such a hot market for so long, it just became money chasing money; reason had left the building,” Sezzle CEO Charlie Youakim told PYMNTS’ Karen Webster in February, noting companies that raised $300 million to $400 million, yet had just $20 in revenue when the hammer came down.

“It’s absurd,” he said.

In a more recent conversation, Youakim and Peter Beckman, CEO and co-founder of Treyd, spoke of the urgency among startups to reign in costs amid an uncertain environment.

And yet, “I still hear it,” Youakim said, “even through this time period. People still just talk about revenue. But who cares about your revenue — unless you’re talking about driving profitable revenue.”