Startup shutdowns continued to accelerate in Q1 2024

Startup shutdowns continued to accelerate in Q1 2024

Author: Kevin Dowd
Read time:  4 minutes
Published date:  16 July 2024
The number of startup shutdowns on Carta hit a new high in Q1, with 254 company closures—a 58% increase compared to last year.

Startup founders are feeling a fundraising crunch. And it’s causing a growing number of companies to shut their doors for good. 

In the first quarter of this year, 254 startups on Carta went out of business. It’s the highest quarterly total so far this decade—but not an outlier. The number of company closures has been steadily rising for the past two years. Between Q1 2022 and Q1 2023, the number of shutdowns experienced a 124% year-over-year increase. Between Q1 2023 and Q1 2024, the count grew by another 58%. 

Startup closures on Carta hit a new high in Q1

A quick note on the data: This chart covers companies that closed their accounts on Carta for the stated reason of going out of business. These are confirmed closures. But many companies leave the platform without specifying a cause. Some of those departures were almost certainly closures, too. It’s therefore very likely that this data undercounts the true number of startup shutdowns taking place.

In addition, part of this recent increase in company shutdowns is due to a concurrent increase in the count of overall companies using Carta. As the size of the data set grows, the number of startups shutting down is likely to grow, too. 

But this alone does not explain the data: In the past two years, the number of shutdowns has increased at a much faster rate than the number of companies on Carta. Even accounting for these data caveats, startup shutdowns are moving up and to the right. 

An increase in closures

One major factor behind the ongoing rise in startup closures is the recent shift in the fundraising landscape. 

Startup investment activity underwent an unprecedented spike during 2021 and early 2022, as deal counts climbed to record-breaking highs. Then, over the ensuing two years, deal activity slowed dramatically. In Q4 2023, for instance, there were more than 1,000 fewer venture fundings than in Q4 2021. 

Somewhere between two and three years is a typical interval between new venture rounds, which means that many of the startups that last raised cash in 2021 are now back on the fundraising trail. But given the decline in deal activity, demand for new term sheets is outstripping supply. 

Running a startup can be a brutal business. If the funding runs out, many founders have no other option but to close up shop. 

Different types of startup shutdowns

Many of the venture-backed startups that have been shutting down in recent quarters fall into one of two buckets, according to Sach Chitnis, co-founder and partner at Jump Capital, an early-stage investment firm that invests across fintech, data infrastructure, and SaaS. 

Some are young companies that raised their first funding during the recent market boom, when investors were more willing to make speculative bets. As the market shifted in 2022 and 2023, some of these startups were unable to find their footing. 

“There are a fair number of 2020 and 2021 vintage deals that just never really got liftoff,” Chitnis says. “The business is subscale, where they can never get it to a point that it’s an interesting business from a venture perspective.” 

Others are more mature companies that were born and grew up in a different economic climate. In 2020 and 2021, many investors were emphasizing breakneck growth for their portfolio companies, confident that they’d be able to convert customers into revenue in the future. Today, when investors are instead prioritizing profitability and early revenue, that equation is less likely to add up.

“You’re also seeing companies that had unit economics that were completely underwater,” Chitnis says. “You saw a lot of this in fintech, insurtech, and other areas where customer acquisition was at all costs. That is going to have ramifications.” 

Shutdowns are up across VC stages

As Chitnis suggests, shutdowns are growing more frequent across multiple venture stages. Between Q1 2023 and Q1 2024, the number of company closures on Carta increased by 102% at the seed stage, by 61% at Series A, and by 133% at Series B. 

Carta_Closures are up at seed, Series A, and Series B

Of course, not every startup that runs into problems is fated for a shutdown. Executives and their investors have spent many hours in recent years searching for ways to adapt and thrive in the new fundraising climate. 

At Jump Capital, Chitnis says that most of these hard conversations about the need to change course took place in 2022, when the market first showed signs of turning. Today, many of those companies are in much better shape. 

“Anyone who was receptive to those conversations took action,” Chitnis says. “I don’t know the exact percentage in our portfolio, but we have a fair number of companies that have gotten to breakeven and are now reinvesting into growth.” 

Prior funding doesn’t guarantee protection

Of the 254 total companies on Carta that shut down in Q1, 136 had previously raised at least one priced round of funding, while 118 had not yet raised a priced round. It was the first time in the past five quarters that shutdowns were more frequent among companies that had raised a priced round than among those that had not.

Closures spiked in Q1 for startups with 1+ priced round

While many founders and their investors tried to adjust their strategy to better fit within the new landscape, not all were successful. And some never saw the shift coming at all. 

“Unfortunately, there were definitely CEOs that were not aware of the changing environment,” Chitnis says.

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Kevin Dowd
Author: Kevin Dowd
Kevin Dowd is a senior writer covering the private markets. Prior to joining Carta, he reported on venture capital and private equity at Forbes, where he wrote the Deal Flow newsletter, and at PitchBook, where he wrote The Weekend Pitch.
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