With the booming Covid-era funding environment long in the rearview mirror, it's been tough sledding for many startups in 2023 as layoffs and, more recently, shutdowns hit the sector.
Carta, a cap-table management platform for startups, said the third quarter of 2023 saw the highest number of startup shutdowns since its service launched in 2012. There were 212 startup shutdowns on Carta last quarter, a 25% increase from the previous quarter and a 50% uptick from the same period last year.
Peter Walker, head of insights at Carta, called the shutdowns "tragic, but not unexpected." Startups that raised rounds in late 2020 and early 2021 are hitting the 18- to 24-month timeframe most startups take before raising their next fundraising round, Walker said. Now, with less capital available — particularly at the later stages — it's meant startups have had to make some difficult decisions.
"The pace of (layoffs), especially in the recent quarters, is pretty steep," he said.
Even big-name, well-funded startups have closed up shop in recent months. Convoy, a freight startup valued at almost $4 billion, shut down in October. Olive AI, another unicorn that raised $857 million in total funding, closed its doors in October as well. Home-construction startup Veev shut down in November after amassing $600 million in funding.
Walker said he expects fourth-quarter layoffs on Carta to finish near last quarter's highs, and continue well into 2024.
"I'd be shocked if leveling off happened in the first quarter of 2024," he said. "I think (layoffs) are going to continue being quite high.
"There really isn’t a part of venture, outside of AI, that is booming right now," he added.
Artificial intelligence has proven to be bright spot in an otherwise tumultuous year for tech, which has seen a lot of layoffs, in addition to shutdowns, in 2023.
According to Layoffs.fyi, which tracks layoffs in the tech sector, tech firms have laid off 256,411 employees this year, as of Dec. 7. That's up 55% from 2022, which saw 164,969 employees let go. Unicorn startups like celebrity shoutout app Cameo and viral TV content company Atmosphere have faced multiple rounds of cuts.
Startups haven't been the only players impacted by the tech downturn. Some venture-capital firms have also struggled, like Boston VC firm OpenView Venture Partners, which recently said it's winding down just nine months after closing its seventh fund at $570 million. OpenView said it will only work to support its existing portfolio companies and has laid off most of its staff.
Even with the headwinds facing the startup sector today, there's a case that 2024 won't be as challenging for startups, Walker said. Venture-capital firms raised a record amount of funding in 2022, meaning there's still ample "dry powder" available to be invested. But that capital alone isn't indicative of a possible turnaround, he said. Until the initial public offering window fully reopens, funding for later-stage startups will remain a challenge. And VCs will remain selective in the companies they choose to back until the market stabilizes.
Walker said he expects overall venture funding to pick up in 2024, but that won't save startups from going out of business.
"It’s going to feel like this very bifurcated market with a lot of haves and have nots," Walker said. "I think shutdowns will continue at least through the first half of 2024, and then the back half of 2024 is kind of an open question."
