Startups are increasingly going bust as funding dries up

There’s trouble in startup land: US startup failures are on the rise two years after bearing the fruit of the tech boom, with the number of startups failing increasing nearly 60% this year already as founders find themselves running out of funds, capitalization table manager and valuation startup Carta detailed in a blog post.

By the numbers: Some 254 of Carta’s venture-backed clients went out of business during the first quarter of the year, marking the “highest quarterly total so far this decade.” The figure has been on the rise for years now — the number of startups closing their doors rose 58% y-o-y during 1Q 2024 and 124% y-o-y during 1Q 2023.

Most recently, fintech firm Tally announced that it will be shutting its doors after nine years in business after it was “unable to secure the necessary funding to continue operations.” The company had a valuation of USD 855 mn just two years prior.

The trigger: Between boom year 2022 and now, startups were faced with rising interest rates, dwindling VC sentiment, and the aftermath of the collapse of Silicon Valley Bank. The difficult reality facing many startups now comes in stark contrast to just a few years back, when “an abnormally high number of companies raised an abnormally large amount of money during 2021-2022,” Morgan Stanley analysts wrote in a note seen by the Financial Times.

As things stand: There’s been a huge drop in the amount of companies able to raise funds within two years of their last funding round, Peter Walker, head of insights at Carta, told the salmon-colored paper. Startups are now resorting to cutting costs to stay afloat, a move that puts growth on the backburner and in turn puts off VCs from lending their financial backing.

The collapse will echo far beyond startup land: The failure of startups will create “spillover risks to the rest of the economy,” Morgan Stanley said, pointing to the 4 mn people employed by VC-backed companies.

ALSO FROM PLANET FINANCE- Turkey’s Monetary Policy Committee is expected to leave the one-week repo rate at 50% when it meets later today, according to Bloomberg. The committee has held rates steady for four months running now. Turkish officials noted that monetary policy needs to remain tight to tackle inflation, which currently sits at 62%.

THE MARKETS THIS MORNING-

Asian markets are mostly in the green in early trading this morning in the wake of a rally in Western markets yesterday. Japan’s Nikkei is up 1.6% and Korea’s Kospi is up 0.8% at the time of writing, while China’s Hang Seng is down 0.3%.

THE CLOSING BELL-

The ADX rose 0.2% yesterday on turnover of AED 1.69 bn. The index is down -2.9% YTD.

In the green: Abu Dhabi National Takaful Co. (+14.9%), Aram Group (+14.1%) and Al Khaleej Investment (+11.1%).

In the red: E7 Group Warrants (-3.2%), Adnoc Drilling Company (-2.8%) and Abu Dhabi National Energy Company (-2.6%).

Over on the DFM, the index fell 0.1% on turnover of 167.4 mn. Meanwhile, Nasdaq Dubai fell -3.5%.

CORPORATE ACTIONS-

ADX-listed Finance House bought back over 1.7 mn of its own shares from the open market, for a total price of AED 3.1 mn, according to an ADX disclosure (pdf). This buyback represents 10% of the company’s total shares.