In 2024, more startups ceased operations than the previous year, reflecting the overwhelming number of companies that secured funding during the frenetic funding climate of 2020 and 2021.
The trend shows no signs of abating, with 2025 poised to potentially witness further closures of startups.
StartupSuperb compiled information from various sources highlighting these trends. In 2024, 966 startups shut down, a significant increase from 769 in 2023, representing a rise of 25.6%. It is important to note that these figures pertain to U.S.-based firms that were clients of Carta and ceased operations due to bankruptcy or dissolution. According to Peter Walker, the head of insights at Carta, there are likely numerous shutdowns that this data does not capture.
Walker indicated that shutdowns have increased across all stages from 2023 to 2024. He explained that the higher levels of funding in 2020 and 2021 would naturally lead to more closures in the following years.
He also acknowledged the difficulty in estimating the total number of shutdowns, noting that many companies leave Carta without disclosing their reasons for departure.
AngelList reported 364 startup closures in 2024, surging from 233 in 2023, marking a 56.2% increase. However, AngelList’s CEO, Avlok Kohli, offered a hopeful viewpoint, asserting that closures remain low compared to the total number of funded companies during both years.
Contrastingly, Layoffs.fyi revealed a declining trend, with 85 tech companies shutting down in 2024 compared to 109 in 2023 and 58 in 2022. Roger Lee, the founder, acknowledged that this dataset only includes publicly reported shutdowns, thus likely underrepresenting the actual figures. Among the tech shutdowns in 2024, 81% were startups; the remainder were public companies or previously acquired firms ceased by their parent organisations.
VCs Did Not Select “Winners”
Many firms received substantial funding during the heated valuations of 2020 and 2021, with notoriously minimal due diligence, resulting in a foreseeable rise in closures as many struggled to secure further funding after a couple of years.
Walker highlighted the hypothesis that venture capitalists did not improve their ability to select successful companies in 2021. In fact, the success rate may be worse that year due to the frenzy in the market. If the success rate of strong companies remains stable while the number of funded companies rises, a significant number of shutdowns should be expected as evidenced in 2024.
Dori Yona, the CEO and co-founder of SimpleClosure, remarked that numerous startups received seed funding in 2021 perhaps prematurely.
This influx of capital may have contributed to their subsequent failures, as rapid funding often fostered high expenditure and aggressive growth strategies that proved unsustainable in a shifting market post-pandemic.
The underlying cause of these shutdowns is evident.
Walker suggested that cash depletion is typically the immediate reason for shutdowns. However, fundamental reasons likely include a lack of product-market fit, challenges in achieving cash-flow positivity, and overvaluation leading to difficulties in securing additional funding.
Looking forward, Walker anticipates that shutdowns will continue into the first half of 2025, followed by a slow decline for the remainder of the year. This forecast relies on a lag estimate following the peak of funding, which Walker believes occurred in early 2022.
Kohli from AngelList concurred with this outlook, remarking that startups funded at unsustainable valuations are far from being completely out of business.
In 2024, companies like Pandion, a delivery startup based in Washington, announced its closure after raising approximately $125 million over five years. Furthermore, proptech firm EasyKnock, founded in 2016 and claiming to be the first tech-enabled residential sale-leaseback provider, also shut down after securing $455 million in funding.
Startups Closing Across Various Industries and Stages
The types of companies affected across the previous year spanned numerous industries and stages.
Data from Carta indicates that enterprise SaaS firms experienced the most significant downturn, representing 32% of the shutdowns, followed by consumer companies at 11%, health tech at 9%, fintech at 8%, and biotech at 7%.
Walker noted that these percentages correspond with the initial funding allocation across those sectors, indicating that shutdowns have occurred in every startup sector without any outliers, supporting the theory that the primary cause for the increase is macroeconomic factors, such as fluctuations in interest rates and diminished venture funding availability in 2023 and 2024.
The more limited dataset from Layoffs.fyi indicated that finance contributed to 15% of shutdowns, with food and healthcare at 12% and 11%, respectively.
Regarding the stage of companies, data from SimpleClosure shows that 74% of all shutdowns since 2023 involved pre-seed or seed stage startups, with 41% at the seed stage.
Most startups tend to close when they completely exhaust their funding, although some may recognise impending failure early enough to return some capital to investors.
Yona revealed that around 60% of failing startups do not possess enough funds remaining to return to investors, while those able to reimburse typically have an average of $630,000 remaining — roughly 10% of their total capital raised on average.
Yona forecasts that the wave of startup closures will persist.
Yona stated that numerous “tech zombies” and a “startup graveyard” will continue to dominate the headlines. Despite the influx of new investments, many companies that raised capital at inflated valuations lack sufficient revenue to sustain operations.