Tried to Survive by Cutting Costs... US Tech Startups Closing One After Another

Four Startups Including WeWork Strike in Last 6 Weeks
High Interest Rates Undermine Corporate Recovery Efforts
VCs Pressure for Closure or Sale to Recoup Investments

Once hailed as 'unicorns' (companies valued at over $1 billion), American tech startups are facing massive closures this year due to high interest rates. Despite urgent cost-cutting efforts, many have failed to resolve their issues, collapsing into zombie companies or shutting down and barely returning remaining investments to investors.

[Image source=AP Yonhap News]

On the 7th (local time), The New York Times (NYT) reported that within the past six weeks, several companies including office-sharing firm WeWork, healthcare startup Olive AI, freight startup Convoy, and housing construction startup Vibe have filed for bankruptcy or closed their doors. The total investment these companies received amounts to $13.4 billion, including $11 billion (approximately 14.5 trillion KRW) for WeWork alone.

Additionally, in May, fintech startup Plastic, which raised $226 million, and last month, real estate startup Zeus Living, which received $50 million in investment, both went bankrupt. American video conferencing solution startup Hopin, once valued at $7.6 billion, faced operational difficulties this year and ultimately sold its main business for $15 million in August.

Tech startups have been striving to prevent collapse by cutting costs over the past two years, but now they have reached their limits as both time and funds have run out. Venture capitalists (VCs) are reportedly pressuring invested companies to either shut down or sell assets, focusing less on future potential and more on immediate salvage value.

According to startup market research firm PitchBook, 3,200 US startups backed by venture capital filed for bankruptcy this year alone. The investments poured into these companies totaled $27.2 billion, which has essentially become worthless. The NYT noted that this data excludes some major failures like WeWork and Hopin, whose bankruptcy or sale was publicly disclosed, suggesting that the actual number of failed tech startups and the scale of investment losses could be even greater.

[Image source=Reuters Yonhap News]

Carta, a company providing financial services to Silicon Valley startups, revealed that as of October this year, 87 startups that raised at least $10 million on its platform have closed down. This figure is double the total number compared to last year. Peter Walker, head of Carta Insights, described this year as "the worst year for startups in at least a decade."

Between 2012 and 2022, investment in US private startups increased eightfold to $344 billion. The ultra-low interest rate environment expanded investment sizes, and the success of startups through social media and mobile applications fueled VC growth. The number of private unicorn companies valued at over $1 billion exploded from a few dozen to over 1,000.

However, NYT pointed out that next-generation startups experimenting with unproven business models such as gig work, metaverse, micromobility, and cryptocurrency were deluded to think they could grow as massively as Facebook or Google, which generate enormous advertising revenue. The NYT reported, "Some companies decided to close before running out of cash and return remaining funds to investors," while "others are trapped in 'zombie mode,' surviving but not growing."

Recently, the bleak situation in the industry has been somewhat overshadowed by a boom in startups focused on artificial intelligence (AI). Jenny Lefcourt, an investor at early-stage VC firm Freestyle Capital, expressed concern, saying, "The industry should prepare for more failure news ahead."

This content was produced with the assistance of AI translation services.