The exuberance and abundance of startup funding seen over the past couple of years has sharply reversed course in 2023.
Like bear cubs emerging from hibernation to suddenly face scarce resources, many startups are struggling to adapt to a new climate. Funding has dried up. Profits are harder to find. Times have turned turbulent in startup land.
As Charles Darwin eloquently stated, “It is not the strongest of the species that survives, nor the most intelligent. It is the one most adaptable to change.”
Startups able to pivot their business models and operations are faring better. However, the challenging terrain has already claimed many victims.
PitchBook data reveals that around 3,200 startups representing $27.2 billion in venture funding have gone kaput so far.
Zombie Startups Limping Along
Beyond recorded shutdowns, a sizeable number of startups are operating in “zombie mode.” They are unable to grow or raise financing but continue limping along well enough to prolong the inevitable.
As 2023 concludes, additional rounds of layoffs and failures await. Startups tend to delay winding down operations until after the New Year for tax purposes.
Venture Capitalists Slamming Their Wallets Shut
If investors seemed cautious in 2022, they have become extremely selective in 2023.
Spiraling interest rates have created fierce headwinds for startups needing capital while presenting lucrative low-risk alternatives for investors. This perfect storm has cultivated an intensely challenging environment for startups living on shoestring budgets and heavily reliant on external funding.
The funding winter has turned glacial.
Tech Startups Among the Hardest Hit
The tech sector produces the most startups along with the most failures, even in prosperous times. However, this year’s hostile climate has been particularly devastating for technology ventures.
Global tech funding in 2022 registered a substantial 34% decline from 2021. The plunge has continued through the first half of 2023 with year-to-date tech funding languishing below $130 billion, a mere fraction of 2022’s total.
CBInsights compiled data on 11 tech startups shutting their doors in the second quarter of 2023. While hardly comprehensive, this list provides insight into the diversity of tech ventures falling victim to adverse conditions.
Spanning sectors from logistics to biotech, their failures serve as obituaries for the recent exuberance in startup creation.
Now, we will explore this startup graveyard to understand better what sent these once-promising companies to an early demise.
Zume – Robot Pizza Fleet Falls Flat
Backed by Softbank to the tune of nearly $450 million, Zume sought to revolutionize pizza delivery using trucks outfitted with robotic pizza assembly lines. However, engineering challenges like preventing cheese from sliding off in transit, plagued operations.
Pivot attempts also failed before Zume finally folded in June after burning through piles of cash over its 8-year run.
Key Takeaway: Technological limitations can rapidly consume funding despite significant initial promise.
IRL – Faking Users Prove Fatal
Touted as the next big social media app, IRL focused on event discovery and planning.
The company achieved unicorn status in 2021 and raised $200 million from prominent investors. However, the facade crashed in 2023 after internal investigations and an SEC probe uncovered 95% fake users among IRL’s reported 20 million member count.
Like a Lehman Brothers of startups, the revelation of gross deception prompted a swift shutdown only a week later.
Key Takeaway: No amount of funding can rescue a startup built entirely on fabrication.
Vedere Bio II – Clinical Shortfalls Lead to Closure
Vedere Bio II sought to develop innovative gene therapies for vision restoration and eye disease treatment.
The young startup showed encouraging early results in mice trials. However, subsequent preclinical data failed to demonstrate the efficacy needed to justify advancing its therapies. Despite $77 million in funding from blue-chip backers, Vedere had to close up shop in March 2023.
Key Takeaway: No matter how promising or well-funded, failure to achieve scientific milestones will sink an R&D-reliant startup.
Fuzzy – Struggles to Scale Lead to Shutdown
Touted as the “one-stop shop” for pet wellness, Fuzzy offered a range of products and services from food to medicine aimed at simplifying pet care.
The San Francisco-based startup raised over $75 million to support its mission. However, Fuzzy apparently struggled to scale its business model economically. As a result, Fuzzy ceased operations in 2023.
Key Takeaway: Attractive branding and funding cannot compensate for the underlying lack of profitable scalability.
Buzzer – Pivot Fails to Save Sports Streamer
Buzzer sought to evolve sports streaming by allowing fans to purchase affordably priced short clips from live games.
The startup gained financial backing from sports luminaries such as Michael Jordan, attracting $32 million in funding between 2020 and 2022. However, Buzzer found itself following in the footsteps of Quibi. An attempt to pivot to a B2B model by licensing its streaming technology ultimately failed.
Unable to endure the harsh climate, Buzzer closed up shop in June 2023.
Key Takeaway: Star power and early funding cannot prop up a startup lacking product-market fit.
Cana Technology – Manufacturing Snafu Sinks Launch
Cana made waves with its molecular beverage printer, which is capable of creating customized drinks.
The futuristic device captured investor attention, helping Cana raise $30 million in 2022. However, the startup hit choppy waters when it was unable to secure additional financing needed to commence commercial production and fulfill pre-orders.
Cana serves as cautionary evidence that hardware-focused startups face a precarious scaling journey from prototype to mass manufacturing.
Key Takeaway: Failure to raise requisite capital at key inflection points can rapidly destabilize a hardware startup.
Wyre – Crypto Market Forces Early Exit
As a leading crypto infrastructure platform, Wyre focused on enabling easy movement between traditional and digital currencies. Wyre appeared to reach escape velocity in 2022 with progress towards a $1.5 billion sale to Bolt Financial. However, the deal ultimately collapsed amid broader crypto industry turmoil.
With crypto winter in full force, Wyre opted to wind down operations in June 2023 despite raising nearly $30 million from investors.
Key Takeaway: Booming interim growth can quickly reverse when market tailwinds vanish.
Summation Bio – Scientific Dead End Prompts Shutdown
Leveraging an innovative technique called mini-nucleosome technology, Summation Bio sought to advance non-viral gene therapy delivery targeting diseases from cancer to tissue degeneration.
Backed by $25 million in funding, progress moved swiftly initially. However, research efforts would unveil insufficient therapeutic efficacy to warrant continuation. Despite employees’ best efforts, Summation had to close up shop in June 2023.
Key Takeaway: Startups reliant on emerging science can find themselves in a biological dead end.
Seeker Biologics – Shortfall in Drug Discovery
Seeker Biologics (formerly Fleet Therapeutics) focused on developing new biologics to treat autoimmune and inflammatory disorders.
The startup had raised $24 million by 2021 and achieved a valuation exceeding $70 million. However, Seeker was unable to achieve key drug discovery milestones needed to drive sufficient value inflection or further financing. As 2023 progressed, Seeker had to concede defeat in its bold drug development vision.
Key Takeaway: Failing to attain essential scientific breakthroughs rapidly erodes options for research-dependent startups
Tessera – NFT Market Diminishes Before Takeoff
Tessera pioneered an innovative platform allowing fractionalized ownership of NFTs via fungible ERC-20 tokens.
The novel concept quickly attracted investor attention, helping Tessera raise $22 million by early 2022. However, the fortunes of Tessera and the broader crypto industry took a sharp turn shortly thereafter. As financial conditions deteriorated in 2023, Tessera found itself forced to close up shop despite once-bright prospects.
Key Takeaway: Startups tied to speculative assets like cryptocurrencies and NFTs face amplified vulnerability to market swings.
Mandolin – Post-Pandemic Reality Checks Growth
If launching during COVID-19 created an opportunity for Mandolin to serve entertainment-starved consumers, the startup soon struggled to retain relevancy as restrictions disappeared.
Mandolin’s virtual concert hosting technology briefly bridged the gap until in-person events reemerged. By 2023, Mandolin had to admit its initial growth spurt would not be sustained.
Having raised $22 million, Mandolin ceased operations only three years after being founded.
Key Takeaway: Temporary market voids can create illusion of scalability unlikely to materialize under normal conditions.
While their business models vary widely, common threads bind the failures of these startups in 2023.
Their early ascent fueled by abundant funding and frequently tied to speculative trends crashed violently back to earth as markets eroded and investors retreated.
African Startups Succumb to Harsh Conditions
The funding crisis has dealt a devastating blow across startup ecosystems globally, including Africa. Estimates indicate that funding for African startups plunged by 50% or more compared to 2022 levels.
The sharp decline has strained startups struggling to raise necessary growth capital.
One notable African startup shutdown was Nigeria-based Dash, which offered digital financial services. Despite raising $86 million and attaining a $200 million valuation, Dash was forced to close down. Insiders cited unsustainable economics rather than regulatory issues for the surprising shutdown of a once high-flying fintech.
Indian Startups Caught in the Undertow
The wave of shutdowns among Indian startups stems largely from the 2021-2022 funding frenzy.
Excessive capital enabled unviable business models and growth-at-any-cost mentalities. However, investors began reeling in funding in 2023. With profits hard to achieve and cheaper capital unavailable, Indian startups with questionable economics soon crumbled.
Notable casualties include:
- Belora Cosmetics – The direct-to-consumer cosmetics brand quickly shuttered after being unable to raise additional capital for scaling DTC operations.
- Tiki Short Video App – Despite gaining 50 million MAUs seemingly overnight, Tiki was unable to pivot successfully in the face of withering competition from Moj, Josh, and international rivals.
- ZestMoney – The unicorn fintech startup helping Indians pay for products in installments collapsed.
- Quizy – The promising startup with over 5 million downloads of its gaming app was gaining nice traction before funding challenges forced its hand.
- Anar – The B2B networking and analytics platform focused on helping businesses manage distribution networks ran out of capital needed to continue software development and sales efforts.
While each failure exhibits some unique dynamics, constrained access to funding has been the ultimate death knell for even rapidly growing startups across India and Africa.
Bubbles Bursting Everywhere
The glaring parallels between the dot-com bubble and recent startup froth portend more carnage.
As Warren Buffett wisely observed during turbulent times, “Only when the tide goes out do you discover who has been swimming naked.” With tides receding at a staggering speed, 2023 promises to further expose just how many startups never Sewed their startup emperor any clothes beyond the investment checks rolling in.
Darwinian Forces Take Hold
Investors and startups alike would be prudent to heed Darwin’s timeless words as they navigate volatile conditions in 2023.
Inflexibility has always been fatal for startups navigating the winding road from scrappy ideas to thriving businesses. However, adaptability takes on heightened importance when traversing the startup equivalent of exoplanet Hoth straight out of Star Wars lore.
While many runners will collapse before reaching shelter, some possess the aptitude and resources to evolve their business model, operations, and budget for new realities.
Those able to effectively adapt stand the best chance of finding renewed footing when warmer weather eventually returns to startup land.