2025 Could Be Another Year of Startup Setbacks

 

Several sources claim that more startups closed their doors in 2024 than the previous year, which is not surprising given the illogical number of businesses that were financed during the wild years of 2020 and 2021.

 

We don’t seem to be finished yet, and 2025 may be yet another terrible year for startups to close.

 

Beingguru discovered similar tendencies after compiling data from many sources. Based on Carta, 966 startups closed in 2024 as opposed to 769 in the year 2023. That is a 25.6% rise. Regarding methodology, those figures are to U.S.-based businesses that were Carta clients but departed the company because of insolvency or collapse. According to Peter Walker, head of insights at Carta, there are probably more interruptions that would not be taken into consideration by the system.

 

Indeed, stops rose at all phases between 2023 and 2024. However, more businesses received funding in 2020 and 2021 (with larger rounds). Therefore, we would anticipate a rise in shutdowns due to the inherent characteristics of venture capital,”

However, Walker acknowledged that it’s “challenging” to pinpoint the precise number of further delays that have occurred and will happen.

He said, “I think that we’re missing an important part.” “Several businesses depart Carta without providing us with an explanation for their departure.”

 

During between, AngelList discovered that there were 364 startup winddowns in 2024 instead of 233 in 2023. That is an increase of 56.2%. Avlok Kohli, the CEO of AngelList, has a more upbeat perspective, pointing out that winddowns “remain comparatively small in comparison to the total number of firms which were sponsored in both years.”

 

No winner picked by VCs

Since numerous companies received funding in 2020 and 2021 at excessive rates with extremely poor review, it stands to reason that a growing proportion of them would be unable to get further funds to continue operating up to three years later. Investing at a value that is too high raises the risk, making buyers uncomfortable to make more investments until the company is expanding rapidly. 

 

The basic premises is that, as a category of assets, entrepreneurs did not improve their ability to identify champions in 2021. In fact, because everything was so crazy that year, the hit rate could have been greater,” Walker added. “But you might see numerous interruptions in the coming years if the number of shutdowns on good businesses stays the same and we finance a lot more firms.” And in 2024, we will have reached that point.

 

In the year 2021, a lot of firms received venture money “likely before they felt ready,” according to Dori Yona, CEO and the co-founder of SimpleClosure, a startup that attempts to streamline the procedure for closing down.

According to Yona, they could have been destined to fail just by receiving the funds.

 

As marketplaces changed after the pandemic, he pointed out that “the fast influx of capital often promoted excessive rates of burn or growth-at-all-costs mindsets, causing sustainable difficulties.” As a result, “in spite of plenty of funding and early commitment, several major businesses stopped business over the past decades.”

 

Industries, Stages of Startups Dying

Firms from a variety of sectors and phases suffered last year.

 

According to Carta’s study, large software as a service companies(SaaS)  are the ones most affected, accounting for 32% of shutdowns. Technology came in at 8%, biotechnology at 7%, healthcare tech at 9%, and consumer at 11%.

The author stated that such figures “comply fairly closely to the initial contributions to those sectors.” In basic terms, this indicates all of the start sectors have seen closures, and none have significantly exceeded, supporting the idea that economic factors—such as increases in interest rates and a shortage of capital for startups in 2023 and 2024—are the primary reason for the rise.

 

Finances made up 15% of the delays, followed by food (12%) and healthcare (11%), according to a considerably smaller subgroup of Layoffs.fyi.

 

 

According to Simple Closures information, 74% of all delays until 2023 have been either pre-seed or seed, with 41% of them occurring at the stage of seeding. Although part see the message on the wall sufficiently early to return part of their investment to the shareholders, most firms close down when their finances are fully destroyed.

 

According to Yona, most firms (60%) which collapse lack enough money left over to pay back funders. “On average, founders who do intend to give back funds have $630,000 in remaining Spending or roughly 10% of the total money raised.”

 

Yona anticipates that the number of startup failures will continue to rise.

According to Yona, “technology undead and a startup grave are going to continue making news.” “There are plenty of firms that are raising funds with high values with not sufficient revenue, notwithstanding an abundance of new investors.”