It’s been a brutal year for startups, with more companies struggling to raise money and hundreds shutting down altogether, according to new data.
So far in 2023, 19% of all startup funding rounds raised money at a lower valuation for the company than they’d previously been awarded by investors. That’s up from just 5% in 2021, according to data from the equity management company Carta Inc.
“You can’t sugar coat it too much, 2023 was a rough year for startups,” said Peter Walker, Carta’s head of insight.
Rising interest rates proved to be a problem for the startup economy, Walker said. The beginning of 2023 was marked with mass job cuts and plummeting investments, and many venture capitalists warned companies would be forced to take lower valuations as the year continued. Artificial intelligence seemed the only bright spot for startups, with funding for related companies rising above every other tech category and reaching $17.9 billion, according to data from PitchBook.
So far this year, 543 startups shut their doors due to bankruptcy or dissolution, according to Carta. The third fiscal quarter saw 212 shutdowns, the highest number since the firm began tracking the data. Last year, 467 companies folded.
Still many investors say that there’s a silver lining for a startup industry in the throes of a bust. The increase in down rounds could mean that towering valuations are coming back down to earth after reaching unrealistic highs during recent years’ pandemic-fueled boom. Founders will also be forced to operate within a more frugal economic environment, encouraging more discipline and restrained spending.
“It’s a good time to start a business, but a difficult time to grow one, because people are caught in this whiplash,” Walker said.