The past couple of years have seen an influx of startups shutting down, underlining a spike in unsuccessful ventures. With 2025 on the horizon, the trend appears to show no signs of easing, pointing towards a harsh year for new businesses.
Based on various data sources, including TechCrunch, Carta and AngelList, an upward trend in startup shutdowns has been observed. Specifically, Carta reported a 25.6% increase in US-based shutdowns in 2024 alone. This surge is likely to continue into 2025, given the flurry of investment activity in 2020 and 2021.
“There were more companies funded in 2020 and 2021. So, we would expect shutdowns to increase due to VC nature,” Peter Walker, from Carta, explained.
However, accurately predicting the exact number of future shutdowns remains challenging. “We’re probably missing a big part of the picture,” Walker admitted.
AngelList’s data corroborates this, showing a drastic 56.2% increase in startup winddowns in 2024. Yet, they offer some positivity, highlighting that these numbers remain relatively low compared to the total companies funded the same year.
On the contrary, VC investment activity over the past years is thought to have contributed to these shutdowns, with high burn rates and “growth-at-all-cost” mentalities proving unsustainable for many startups.
Walker notes, “VCs didn’t get better at selecting successful startups in 2021, and with more businesses funded, there’s bound to be an increase in shutdowns.” This prediction places us on the cusp of numerous closures come 2025.
The primary factors provoking these shutdowns are lack of product-market fit, cash flow deficiencies, and overvaluing leading to hindrances in continued fundraising.
Walker forecasts an upswing in shutdowns during the first half of 2025, followed by a gradual slowdown. His timeline coincides with the peak of funding back in Q1 2022.
Despite some startups managing to avoid total insolvency and return some investment capital, many are predicted to shut down completely. Thus, experts, including Dori Yona of SimpleClosure, expect the headlines of “tech zombies” and “startup graveyards” to persist.
Original source: Read the full article on TechCrunch
