High-flying startups are dropping like flies
Here are just a few recent collapses, per the NYT:
WeWork, which raised over $11 billion as a private startup, went bankrupt earlier this fall.
Hopin, the virtual events startup that rode a Covid wave to a $7.6 billion valuation, sold its primary business units for $15 million.
The e-scooter company Bird, which became the fastest startup ever to land a $1 billion valuation, was delisted from the NYSE and is now worth $7 million. That’s less than a third of the $22 million its founder paid for a Miami mansion in 2021.
Overall, more than 3,200 private venture-backed US startups that have collectively raised $27.2 billion have gone out of business this year, according to the NYT and PitchBook.
What changed?
Interest rates, that’s what. With the Fed jacking up rates to a 22-year high, the cost of capital has become far more expensive, and investments that are less risky than writing a check to a 20-year-old Stanford dropout have gotten more attractive. This year has been particularly ugly, as startups that had been hanging on for dear life have not found investors willing to throw them a life raft.
It’s an abrupt end to the golden VC years fueled by low interest rates and the growth of the mobile internet: Investment in US startups jumped by 8x between 2012 and 2022 to $344 billion.
Zoom out: If you’re a founder looking to raise money in this tough environment, consider building a chatbot. As of August, more than 25% of all dollars invested in US startups this year went to AI companies, while funding of AI startups has more than doubled from 2022 to 2023, per Crunchbase.—NF
