Tough year for startups, 3,200 VC-backed companies shut down

Startups are having a pretty tough year as around 3,200 private venture-backed US companies closed down or declared bankruptcy this year.

Telehealth orthodontics startup SmileDirectClub is the latest to join the bandwagon when it announced Friday that it was winding down its operations, less than three months after filing for Chapter 11 bankruptcy. The company, started in 2014, was once valued at $8.9 billion. It went public in 2019.

Firms that shuttered in 2023 had collectively raised $27.2 billion in funding, according to data compiled for The New York Times by PitchBook. 

Most startups rode the venture capitalists-fueled startup wave from 2012 to 2022. It has since then shifted.

What has changed?
The 22-year high federal interest rates have made investors double-think their investments. Consequently, businesses with slow to no growth have run out of cash.

Skyrocketing rates have also forced VCs to pull breaks on funding.

Several others are stuck in a “zombie” mode, surviving but unable to grow, reports the NYT.

Despite the overall gloom, AI startups—particularly those developing chatbots—have doubled their funding in 2023 compared to last year, according to Crunchbase.

Companies that help other startups close their operations—like SimpleClosure—are seeing an increased injection of funds.

Prominent ventures that have gone down this year include,

• Coworking space WeWork, once valued at $47 billion, went bankrupt earlier this fall. It received $11 billion from VCs.
• E-scooter company Bird, which had a $1 billion valuation at one time, was recently delisted from the NYSE and is now worth $7 million.
• Virtual events hosting platform Hopin, once valued at $7.6 billion, sold its main business for just $15 million.
• Freight firm Convoy, valued at $3.8 billion at its peak, ceased its operation this October.