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Was 2023 really "that bad" for US startup shutdowns?

Yes.

In prior shutdown graphics, I've just charted the growth in total shutdowns by quarter. And some folks have pushed back by saying "you should express this shutdown data in terms of a failure rate instead of a simple count".

Good feedback!

Issue is, an exact failure rate is pretty difficult to come by. There are startups that join Carta every day, so the denominator in that rate is constantly updating. You also get into debates about whether all startups should be counted or only those that have moved beyond the idea stage, etc.

So here's what I did:

1. Looked at all US companies on Carta incorporated between 2017–2022 that have raised at least $1 million so far.

2. Then filtered down to the companies within each incorporation cohort that have gone out of business.

3. Charted the percentage within each cohort by the year they closed up.

Visualized by founding year, the severity of 2023 shutdowns becomes obvious. For startups founded in 2018 that raised $1M+ and have since gone out of business, over 𝗵𝗮𝗹𝗳 did so in 2023.

Now you may not think this shutdown rate by year would be equal - but the giant jump across every single incorporation cohort tells a very loud story.

Sadly, it doesn't look like this story is over either. The Q1 2024 numbers (incomplete, obviously) are foreboding.

The sea change from rising interest rates (and a hundred other things, I'm sure) swamped many startups last year. Here's hoping founders who were caught in this tide take another crack at it in the near future 🙏

If you're a Carta customer and thinking about this shutdown process, let us know and we can help streamline the administrative burden with you: https://lnkd.in/gJ_xAPu2

#cartadata #shutdowns #startups #founders ____________________

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The pace of startup shutdowns has increased to start 2024.

Among startups on Carta that have raised at least $5million in priced equity, 61 shut down in January and February of this year.

That's more than the total that closed up shop in Q4 2023 and we haven't added in March yet.

Some more dispiriting figures:

• January was the highest month of startup shutdowns on Carta for Seed-stage, Series A, and Series B companies. For Series C and beyond, the worst month was February.

• More startups that had raised at least $10M shut down in the first two months of 2024 than did in Q4 2023 (prior record quarter).

• More startups that had raised at least $20M shut down in the first two months of 2024 than did in Q4 2023 (prior record quarter).

• Worst 2-month period for Fintech, SaaS, Healthtech, and Medical Device shutdowns in all of Carta data.

What is happening?

I do think some of the increase is due to seasonality - maybe founders gave themselves until the end of 2023 to find a different solution. Some is a little noise (the process to shut down a company is lengthy).

But a lot of it is structural. 2023 was a year where many startups were kept afloat through bridge financings from their investors. I'd bet that we see fewer bridges this year as attention turns back to primary rounds - which leaves companies that couldn't find their footing with few options.

Unfortunately I think our data is also an undercount, as many companies end without letting us know immediately (or at all, sometimes).

M&A is another route, of course, but typically companies that attempt to sell themselves as a last resort are disappointed.

Hug your founder friends 🙏

#cartadata #startups #founders #shutdowns ___________

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Throw in some headphones and join me for an audio-only breakdown of startups in 2023—Monday at 9am PT.

We’ll talk fundraising. Valuations. Down rounds. Deal terms. SAFE caps. Shutdowns. Comp changes. 409A. All the good stuff.

And of course you can jump up on a virtual mic and ask questions! I’ll stick around for as long as there’s an inquisitive audience. If you have one on your mind right now, let me know in the comments so I can prep a great response for you.

We’ll wrap up with a few insights from the Carta crystal ball on 2024 - no promises, but many educated guesses.

🙏 appreciate you all, hear you Monday! Link to event in comments.

#cartadata #startups #founders #venturecapital

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Startups are facing an "extinction event" - true or false?

As usual, the answer is more nuanced. Let's dig into the data.

Chart below shows startups that left the Carta platform by quarter for the reasons "bankruptcy or dissolution". This gives us the minimum number of startups that shutdown in a given time period (the real figure is likely higher but this is a stable metric to track over time).

Important note - this only looks at startups that have raised at least 1 priced round already. Many more startups in the pre-seed stage also failed over this time period.

So - are more startups going out of business? Yes.

39 startups on Carta went bankrupt / dissolved in Q2 of 2021.

81 did so in Q2 of this year, a jump of 107%.

There has also been a slight trend towards later-stage startups taking more share of the bankruptcies. When we looked at this using a separate metric (total cash raised at time of dissolution), there were more startups that raised $25M+ that failed in Q2 2023 than ever before.

Now - is this an extinction event? Depends on your perspective. Certainly a number of companies raised lots of money in the past 2 years that wouldn't have been able to raise in a more "normal" environment.

But at the end of the day, I bet the percentage of startups that fail over the coming year remains roughly in line with prior years.

Important to look at this failure rate, but not a fun topic. Big appreciation to any and all founders going through this decision - we are better off for you trying at all.

#cartadata #startupfailure #bankrupcties #dissolutions #startups