Many startups today are hitting the end of the line. The bank account is empty, the raise has failed, and it’s time to say goodbye.
From a report out today in The Wall Street Journal:
Fresh capital from venture investors and bank loans is scarce and expensive. Going public is near impossible. Some business models that worked when cash was cheap are unsustainable now. That means venture-backed startups are running out of money and facing hard choices.
“The Mass Extinction Event for startups is under way,” said Tom Loverro, general partner at venture firm IVP, in a recent tweet. Loverro said in an interview that none of his portfolio companies has shut down recently, but it is early days in what could be a wave of startup failures. “It’s like the entire industry went out drinking and is now suffering the consequences,” he said about the venture boom of 2021 that he believes is heading for a bust.
Why is 2023 seeing so many shutdowns?
When startups raise a round of funding, it typically gives them 18 months of “runway.” This is the amount of time they have until they run out of cash, given their current monthly burn rate.
The hot market ended around the beginning of 2022. We’re now almost 18 months past that.
And startups are running out of cash, right on schedule.
If this were 2021, they’d just go out and raise a bunch more.
But today, the market for anything that’s not generative AI is weak. Non-AI companies can raise, but only if they have incredible growth.
For everyone else, the music has stopped.
In recent months, several companies that raised significant venture funding have folded, including biotechnology company Goldfinch Bio, wine business Underground Cellar and fintech company Plastiq.
California startup Zume, which was developing a robotic pizza maker and was once valued at $2.25 billion, recently entered a wind-down process handled by Sherwood Partners, a restructuring firm, according to Sherwood’s co-founder and co-president Martin Pichinson.
Notice how companies that involve “stuff” keep popping up among the fatalities? That’s no accident.
Stuff is really hard. Zume had to buy a bunch of robot arms and trucks — that’s really expensive.
A software startup just needs some laptops. Their one bill — cloud computing costs — is covered with AWS credits!
Software startups fail too. But because they scale easily and require fewer resources, they’re harder to kill.
I had an opportunity to invest in some of the companies that have shut down recently. I passed.
Of my 20 investments, none have shut down yet.
But sadly, some surely will. Failure is inevitable in the world of startups.
If the founder tried his best and kept us updated, I want to be the first check into his next company. Some of the greatest investments of all time are in repeat founders!
For founders that are still fighting, the key is to reduce burn and hit breakeven. Then, you control your own destiny.
Be ruthless. Cut staff. Trash pet projects.
If you survive, you have a chance to thrive.
And if you do hit the wall, don’t beat yourself up too much. Come up with your next best idea, and try again!
Are you seeing startups hit the wall? Leave a comment and let us know!
If you enjoyed this post, subscribe for more like this!
More on tech:
Why AI Won’t Cause Mass Unemployment
Meet My New Investment Analyst: GPT-4
Save Money on Stuff I Use:
This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.
More on Fundrise in this post.
If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!
I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!
I wrote a detailed review of Misfits here.
Use this link to sign up and you’ll save $15 on your first order.
Tremendous 
Leave a comment