(San Francisco) WeWork has raised more than 11 billion as a private company. Olive AI, a healthcare company, 852 million. Convoy, which wanted to reinvent trucking, 900 million. Veev, a young start-up in residential prefabrication, 647 million.
Since mid-October, they have all declared bankruptcy or closed: four failures which augur the deflation of a tech bubble, say investors.
After having survived by slashing their costs for two years, many “unicorns” – promising tech firms – will soon run out of money and time. The harsh reality is that investors are no longer interested in promises. They are the ones who decide which young companies are worth saving and which others will be closed or sold.
Billions go up in smoke. In August, Hopin, a start-up which raised more than 1.6 billion dollars and which was already valued at 7.6 billion, was sold off for 15 million. Last month, Zeus Living, the Airbnb for monthly rentals, which had raised 150 million, closed its doors. Plastic, a fintech which had raised 226 million, went bankrupt in May.
PHOTO PATRICK SANFAÇON, LA PRESSE ARCHIVES
A Bird self-service electric scooter. Bird’s stock fell, and the company was delisted by the New York Stock Exchange.
In September, Bird, an electric scooter supplier that raised $776 million, was delisted from the New York Stock Exchange due to its low share price. Its market capitalization is 7 million; Bird is worth less than the $22 million mansion its founder, Travis VanderZanden, purchased in Miami in 2021.
The entire sector should buckle up: we will hear the word “bankruptcy” often.
Jenny Lefcourt, partner at Freestyle Capital
Investors are burned out, and the founders of young startups will have to get up early to finance their next projects: “The more people have money before the end of the party, the longer the hangover will be. »
It is difficult to precisely assess losses: figures for private companies are not published if they close or sell.
The sector’s gloom has been masked by the boom in artificial intelligence, which has attracted attention and funding over the past year. But around 3,200 young companies that raised 27.2 billion in venture capital closed in 2023, according to data provided to the New York Times by PitchBook, which tracks young companies. These two figures are undoubtedly below reality, because many closures occur quietly, notes PitchBook, which adds that it has not taken into account major bankruptcies of companies listed on the stock exchange, such as WeWork, or which have found a buyer, like Hopin.
Twice as many tech companies closing
Carta provides financial services to Silicon Valley startups. Of its clients who had raised at least $10 million, 87 closed between January and October 2023 (nearly double that of all of 2022).
“This is the toughest year for startups in at least 10 years,” Peter Walker, Carta’s head of research, wrote on LinkedIn.
Venture capitalists say that failure is normal and that for every shutdown there is an exceptional success story like Facebook or Google. But many companies have not been going anywhere for years and seem close to collapse: investors fear a drain commensurate with the enormous cash invested over the past 10 years.
From 2012 to 2022, risk capital in American start-ups increased eight-fold to reach 344 billion. This windfall can be explained by low interest rates and the success of social media and mobile applications, which have transformed tech venture capital. It used to be that almost every major player in the industry could be found on the same street, Sand Hill Road, in Silicon Valley. However, this sector has become enormous, comparable to hedge funds or private equity funds.
Venture capital became all the rage – even 7-Eleven and Sesame Street launched venture funds – and the number of “unicorns” valued at $1 billion or more exploded from a few dozen to more than 1000.
However, not everyone is Facebook and Google – with their dizzying advertising revenues – and especially not the new wave of start-ups and their business models based on freelancing, the metaverse, micromobility and cryptocurrencies.
From unicorns to zombies
Today, some companies decide to close before they run out of money and return what’s left in the fund to investors. Others are in “zombie” mode; they survive, without managing to develop.
Convoy, the “Uber of trucking,” once valued at $3.8 billion, has spent the last 18 months cutting costs and cutting staff. It was not enough.
This year, as money began to run out, the company tried to sell itself to three investors: all of them said no thanks. According to co-founder and CEO Dan Lewis, this failure “was one of the most difficult moments.” Convoy closed in October, the victim of a “perfect storm,” Mr. Lewis wrote in an email to employees.
Some venture capitalists have come to tell certain founders that “perhaps it is better to accept reality and throw in the towel” than to suffer for nothing for years, as Elad Gil wrote in a blog.
According to Mme Lefcourt, of Freestyle Ventures, two of his young shoots have just done so, repaying half of the amount invested. “We try to tell the founders: ‘Hey, there’s no point in sinking into the bottom of the cul-de-sac.’ »
SimpleClosure has the wind in its sails
But there is one area of technology that is thriving: closure.
SimpleClosure, a startup that helps businesses close, hasn’t kept up with demand since its launch in September, says Dori Yona, the founder. SimpleClosure helps prepare legal documents and manage obligations to investors, sellers, customers and employees.
It’s sad to see so many young companies close, Mr. Yona says, but he finds it “special” to help founders turn the page at the end of a difficult period. Besides, it’s part of the Silicon Valley circle of life, he says.
“Many of them are already working on their next business. »
This article was first published in the New York Times.