Startups were expected to face a so-called mass extinction event this year, but relatively few have actually shut down. An inevitable wave of emergency financings on unfavorable terms or shutdowns might be on the horizon, though.
Some venture capital investors, notably Y Combinator president Garry Tan, warned of a looming mass extinction event in the immediate aftermath of Silicon Valley Bank's chaotic collapse in March.
Federal authorities quickly stepped in and prevented a larger financial meltdown from that crisis, and investors and founders quickly got back to business.
"Decisive action by the Fed has essentially allowed the meteor to miss Earth," Berkeley SkyDeck Fund general partner Chon Tang told me at that time. "It came close enough that I am still concerned about some of the secondary effects on customers, on investors."
However, founders still had to contend with a prolonged funding downturn this year, save for some buzzy AI-related startups. That's led many startups to conserve cash. Layoffs have also been part of their strategies to extend their runway.
Two years into the venture capital slowdown, many startups could be steadily heading towards a financial cliff that has simply been delayed, according to a recent report from PitchBook and the National Venture Capital Association.
"Looking forward, the future of many venture-growth startups hangs in limbo. Many startups that raised financing rounds at the height of 2021 now find themselves trapped in a much harsher fundraising environment when subsequently seeking follow-on rounds," the PitchBook-NVCA report says. "Cash runways can only last so long, and staying private is a privilege. Assuming the lackluster exit environment and current trends persist, we are likely to see a large wave of down rounds and shutdowns in coming quarters."
During the first year of the Covid-19 pandemic, more than 900 startups shut down around the world, including 81 in the Bay Area, according to Crunchbase. Fewer startups shut down in subsequent years.
In 2021, around 330 startups shut down globally including 41 in the Bay Area, and those numbers ticked up just slightly last year. Close to 400 startups shut down globally in 2022 including 51 in the Bay Area.
So far this year, more than 130 startups have shut down globally. Of those, around a dozen were based in the Bay Area.
Reasons vary, but tighter funding environments can reveal a startup's underlying flaws.
IRL was among the local startups that shutdown this year. Named after the shorthand for "in real life," IRL was a social media app that tried to compete in the crowded messaging space. It shut down in June after its board determined that 95% of the app's users were fake. SoftBank subsequently sued the startup's former CEO.
A couple of Bay Area startups announced they were shutting down just over the past week: a Twitter/X competitor called Pebble and the telehealth provider Choix.
On Monday, the once buzzy San Francisco-based abortion-care telehealth provider Choix announced that it was winding down amid legal uncertainties.
Pebble attempted to be a safer, friendlier alternative to Twitter after Elon Musk's takeover but ultimately the company, originally called T2, failed to pick up steam.
Next year might bring more pain to the startup ecosystem, but for now, most companies are hanging on.
