More startups shut down in 2024 than the previous year, and data suggests that 2025 could be just as challenging for the startup ecosystem.
According to multiple sources, the wave of shutdowns is largely attributed to the overfunding frenzy of 2020 and 2021, when venture capital (VC) firms poured money into startups with little due diligence.
Alarming Trends in Startup Closures
Data from Carta, a popular equity management platform, indicates that 966 U.S. startups shut down in 2024, a 25.6% increase from 769 in 2023. Similarly, AngelList reported 364 wind-downs, a 56.2% rise compared to 233 in 2023. However, layoffs tracking platform Layoffs.fyi showed a contradictory trend, reporting fewer shutdowns—85 in 2024 compared to 109 in 2023—but acknowledged that their data captures only publicly reported closures.
Peter Walker, Head of Insights at Carta, noted:
“Yes, shutdowns increased at every stage in 2024, but this was expected given the massive funding rounds of 2020 and 2021. Many startups are now struggling to raise additional funding to sustain operations.”
Advertisement
Causes Behind the Surge in Closures
Several factors have contributed to the surge in startup failures, including:
- Overvaluation: Many startups raised funds at inflated valuations, making it difficult to attract further investment.
- Lack of product-market fit: Startups that scaled too quickly without solid market validation are running out of cash.
- Shifts in investor priorities: With rising interest rates and cautious VCs, the availability of capital has decreased significantly.
Dori Yona, CEO of SimpleClosure, explained:
“The rapid capital influx in 2021 encouraged high burn rates and a ‘growth-at-all-costs’ mentality, which became unsustainable as market conditions shifted.”
Industry-Wide Impact
The closures have affected various sectors, with enterprise SaaS startups being the hardest hit, accounting for 32% of shutdowns, followed by consumer (11%), healthtech (9%), and fintech (8%), according to Carta’s data.
Walker added:
“Every industry has been affected, which supports the notion that the downturn is largely macroeconomic.”
What’s Next for 2025?
Industry experts predict that 2025 will see more shutdowns, particularly in the first half of the year. However, as weaker companies exit the market, stabilization is expected in the latter half. Young companies that manage to navigate these turbulent times will likely emerge stronger with sustainable growth models.
Despite the bleak outlook, some industry leaders, including AngelList CEO Avlok Kohli, remain optimistic:
“They’re not all doomed. Many startups will find new paths forward.”
As the ecosystem continues to recalibrate, founders are urged to focus on profitability, capital efficiency, and long-term resilience to weather the ongoing challenges. enterprise password management market, offering a trusted solution for teams worldwide.
