The Financial Times reported that startup failures in the US have risen by 60% in the past year, bringing the state of the economy into question. The data, which originally came from Carta, shows that startups are shutting down quickly, despite the investment being put into them by venture capitalists.
Whilst the stats are not only worrying for those working in tech, they also could have wider ramifications for investors – not to mention global economies.
Here, we asked the experts why they think so many startups are running out of cash, and what can be done about it.
Let’s see what they have to say…
Our Experts
- Ross Jenkins, CEO at Digitalme
- Jonathan Cohen, M&A Partner at Global Law Firm Ashurst
- Taylor Kovar, Founder & CEO at 11 Financial
- Vipin Makhija, Founder at Kast
- Chris Morris, Co-founder and COO at Sustainable Ventures
- Julie Cunningham, CEO & Founder at Portend
- Mikhail Taver, Founder at Taver Capital Venture Fund
- Thomas F. Anglero, Founder/CEO at Too Easy AS
- David Sinkinson, SaaS Entrepreneur and Podcast Host
- Steve Taplin, CEO at Sonatafy Technology
- Justin Izzo, Research Lead at Dropbox DocSend
- Mike Siegel, GM of North America at SaaS Services Provider, VeUP
Ross Jenkins, CEO at Digitalme
“I think the big percentage is based upon how difficult it’s become to successfully build a startup in the modern age, with inflation, and rising interest rates which have led to harder and tighter funding, investors are becoming more risk aware which has also made it harder for companies to raise the capital they need to survive and thrive.
“The pandemic also hurt a lot of businesses, even new companies are being affected by the leftovers, customers’ perspectives and behaviours have switched, and we’re still seeing supply chain disruptions and higher operating costs which add more pain to the margins.
Startup companies need to be more lean and understand the future of raising isn’t as clean cut as it used to be, along with the war plus the raising inflation, it’s made everything a whole lot harder to live, thrive and survive.”
Jonathan Cohen, M&A partner at Global Law Firm Ashurst
“Without question across 2024 the early stage UK tech ecosystem in the UK has struggled, tech businesses have been failing or flatlining primarily due to the lack of fundraising options and reduced confidence by existing investors and consumers – a trend likely to continue until we see confidence (evidenced by a valuation uptick) return to the early stage tech market.”
Taylor Kovar, Founder & CEO at 11 Financial
“The 60% increase in U.S. startup failures year-over-year is a highly concerning trend that reflects several underlying factors. One significant reason we have seen is the tightening of capital due to rising interest rates, which makes it challenging for new ventures to secure funding. Additionally, many startups launched during the pandemic may have faced unrealistic growth expectations that are difficult to sustain in a more uncertain economic environment.
“Also, the competitive landscape has intensified, with more entrepreneurs entering the market, making it harder for individual startups to differentiate themselves. Founders must not only have a solid business plan but also adapt quickly to changing market conditions and consumer needs. A robust financial strategy and flexibility in operations are critical for navigating these challenges.”
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Vipin Makhija, Founder at Kast
“1) They’re not focused on the right idea: Imagine creating a tall skyscraper in a hurricane affected neighborhood. Wrong idea. IN the case of startups, maybe there aren’t enough people who have the problem the startup is trying to solve for. Maybe it is a real problem, but people aren’t willing to pay for it. Maybe the market is too saturated with competitors and it’s hard to differentiate.
“2) They’re doing it the wrong way: Imagine trying to grow watermelons in a desert. It won’t happen. Execution is of utmost importance. Both in terms of creating the right product, and selling it to the right customer.
“3) They don’t have the right people: Imagine having your offensive linesman try to be quarterback. Or trying to win SuperBowl without a good defense. Similarly, the misfit and/or lack of skills almost always ensures failure to achieve outcomes.”
Chris Morris, Co-founder and COO at Sustainable Ventures
“At Sustainable Ventures, our failure rate is 16%. There are three things startups need to have a low failure rate: access, selection and support.
“On access, it’s relationships with government, academia and our various other commercial partner as well a growing reputation in the sector. As a result of those, Sustainable Ventures now has quite privileged access to deal flow. Over the last 12 months alone, we’ve reviewed 1400 inbound investment opportunities.
“On selection, we then rigorously apply criteria: a strong, growing market, a technically and commercially viable solution, strong IP and climate impact. We then look for a self-aware team.
“The investment team’s success is also down to a focus on core technologies in software, hardware and materials and ensuring a diverse founder mix.
“Companies with hardware or advanced materials climate-tech solutions make up around two thirds of our investment portfolio, with university-backed startups also increasingly common.
“And then finally, on support. We’re very hands-on investors, so we directly work with the entrepreneurial teams that we invest in to provide the support they need to succeed, making sure they have both the best possible chance of getting to market and accessing future capital.”
Julie Cunningham, CEO & Founder at Portend
“Start-up failures in the US have jumped 60 per cent over the past year, highlighting a critical lesson for both VCs and founders: the importance of post-investment due diligence. During the boom years (2021-22), many startups raised excessive amounts of capital without the necessary checks and balances, inflating valuations and creating unrealistic expectations. The pursuit for rapid growth has led to a painful reckoning as interest rates rise and venture funding tightens.
“The collapse of companies like live-streaming platform Caffeine, desk rental giant WeWork, and healthcare start-up Olive serves as a stark reminder that successful, long-term growth requires thorough due diligence and robust business models. Today, real-time financial reporting technology can monitor investments and provide early warning systems to prevent small issues from becoming catastrophic failures. Founders and investors alike need to be encouraging each other be better informed of their financial situation and vigilant in reporting to prevent business failure and they should be looking at new technologies to help them.”
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Mikhail Taver, Founder at Taver Capital Venture Fund
“Firstly, I reckon this statistic looks fishy. They’re assessing the number of startups, not their percentage of the total. What if the startup boom of recent years has simply increased the quantity? In that case, the percentage of bankruptcies might be the same, or even lower, but the figures wouldn’t look quite so dramatic.
“Secondly, perhaps we’ve reached a point where startups are facing the harsh realities of business. After all, if you’ve raised money based on inflated expectations, as has been the case for several years, there comes a moment when disillusionment sets in, and investors start scrutinising the startup’s metrics and expenses. It turns out that splashing out on corporate swag isn’t terribly sensible, the team is bloated, and there’s neither the skill nor the habit of running a tight ship. In this situation, the easiest solution is to throw in the towel and claim it didn’t work out, as real life proves far more challenging and quite unlike the moment when you felt like a millionaire because someone invested at an inflated valuation. Unfortunately, not everyone wants to graft as a proper business should, rather than as a fundraising machine, and even fewer can manage it. Thus, unsuccessful startups will always be a part of the landscape.
“But, I’ll say it again, this looks like rather misleading statistics. I wouldn’t be too hasty to draw conclusions about market trends from this. It seems quite logical to me that it’s precisely about the growth in the denominator – the total number of startups.”
Thomas F. Anglero, Founder/CEO at Too Easy AS
“The reason why US startups have decreased 60% is several. First, innovative people have become risk adverse. In the past, you could always fall back to a job at McDonalds. This is no longer true. There are no safe jobs to fall back to anymore.
“Second, the large quantity of Asian students that have fed the startup eco-system directly and indirectly have stopped coming to the US. This has negatively affected universities budgets and consequentially has affected the student’s culture of thriving. The US educational system has been in a steady decline for years with Administrators making larger salaries than corporate CEOs.
“Third, people are using GenAI to make their current job or posting online easier but not to innovate and create new jobs. The American culture needs more role models that are rich in character and ethics. People who work startup companies for a better tomorrow, not just for money.
“Innovation is a mindset and culture to itself. The US environment has to fertilize this special breed of people. Today, the US is doing so in small communities but not as before when it was the American way of life.”
David Sinkinson, SaaS Entrepreneur and Podcast Host
“There are a few factors which I believe could be contributing to an increased rate of startup failures YOY.
“In the first case, startup markets – like all markets – have an ebb and flow. In 2022 there was a boom cycle with the debut of AI that likely caused a significant number of new firms to start, while also disrupting some early market players. Now that we’re a few years out, it’s possible that more startups than average have failed along with some early AI entrants, causing a bust in the market. It’s too early to tell if this is the start of an AI ‘bubble’ popping; but it is potentially an indication of a market correction and consolidation.
“The other major possibility is the cost of money. Data shows that most venture-backed startups fail after 4 years. Looking backward, 2020 / early 2021 was right around when capital was considerably less expensive. Jumping ahead to 2024, venture capital firms are likely reigning in investment and startups are exhausting their capital runways, causing a higher than average number of startups to fail.”
Steve Taplin, CEO at Sonatafy Technology
“The 60% year-over-year increase in US startup failures is a stark reminder of the current market’s volatility. As a serial entrepreneur who has launched around 30 companies, I’ve seen firsthand the factors that contribute to such a dramatic rise in failures.
“Here’s why it’s happening:
“1. Capital Crunch: The tightening of venture capital funding is a key driver. Investors are becoming more risk-averse, leading to fewer lifelines for startups that rely heavily on continuous funding rounds.
“2. Economic Uncertainty: Inflation, rising interest rates, and global economic instability are making it harder for startups to forecast and sustain growth.
“3. Increased Competition: The post-pandemic boom in tech startups created a saturated market, where only those with unique value propositions and strong operational foundations survive.
“This surge in failures isn’t just about bad luck; it’s about a market correction where only the strongest and most adaptable will thrive.”
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Justin Izzo, Research Lead at Dropbox DocSend
“There’s a lack of capital being put into the startup market, causing startups to run out of cash. On top of it, a large portion of this money is going to AI companies, leaving even less money for everyone else.
“Private markets often follow public markets’ lead. Macroeconomic conditions caused investors to be cautious as they level set from an expensive 2021 landscape, with high valuations that didn’t always turn into profit. Investors are slowly getting back to dealmaking, but companies are now struggling to secure follow-on funding, with flat and down rounds on the rise. According to PitchBook, nearly 30% of VC deals in H1 2024 were flat or down rounds.
“Still, founders are working hard to secure funding as investors prepare to use their dry powder in the second half of 2024. Dropbox DocSend’s metrics provide a forward look into funding dollars by tracking pre-deal activity with pitch decks. Investor pitch deck interactions are consistently above all previous years tracked — up 21.7% year-over-year (YoY) in Q2 from 2023 — and exceed 2021’s activity, which led to record-breaking funding. Startup failures should be expected to drop in the latter half of 2024 into 2025 due to the high founder and investor activity we’ve seen so far this year.”
Mike Siegel, GM of North America at SaaS Services Provider, VeUP
“Startups fail when they run out of money. The exact reasons why vary considerably, however – from product-market fit, to poor go-to market (GTM) execution, or simply due to having the wrong team leading the business. Regardless, the reality is that funding runways have been considerably shorter in recent years as VC investment has slowed down, with investors being far more discerning. So, startups have less time to work through their business challenges before their funding dries up.
“That said, startups should feel confident they can buck this trend! My advice is as follows:
- When scaling, have the finances with which to operate and facilitate your growth plans, and have the support around you to help navigate challenges that will arise. Then there’s your network, the team of people you have around you and the culture you build and nurture as you grow
- Don’t lose sight of the reason why the business exists. Ask yourself, what is our mission? What is that North Star we’re striving to achieve? Ensure you have the relevant data and assets to support your growth plans, the cash to execute, and the right team of people and support network.
- Use visualisation to map out what you want to achieve and agree actionable steps. Everything is created twice – once in our minds and then again in reality
- The greatest pain usually revolves around money and people, so consider what pre-emptive measures you can put in place”
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