Why VCs are investing in startups that help other startups shut down

In one of the VC world’s greatest ironies, investors have lately been clamoring to back startups that are helping other startups shut down. So whether a VC-backed startup is succeeding or shuttering, investors themselves are finding ways to make returns for their limited partners while also helping founders move on more quickly. And with an estimated 90% startup failure rate, there appears to be no shortage of potential customers for companies who specialize in unwinding other companies. As one seed-stage investor recently bemoaned on X, “Wind downs are sad, emotional and hard enough. Add the legal, financial and logistics work and it doubles the pain. I feel for founders going through this.” bike caption feature Sadly, in 2024, it’s an even bigger-than-typical pain point that needs addressing. While the market was flooded with venture capital in 2021, funding has since slowed globally. For example, Crunchbase News recently identified a sample set of 28 private companies that have a peak valuation of $1 billion or more but haven’t raised a round for years. Some 3,200 private venture-backed U.S. companies went out of business last year, according to Pitchbook data. So it’s safe to assume that 2024 will be another year where a lot of startups will shutter. That’s clearly why investors have begun backing startups that help other VC-backed startups return unused capital, auction or otherwise dispose of their assets, or sell themselves off wholesale to shut down. Today alone, Sunset announced it has raised $1.45 million in seed funding — mostly from a group of angel investors. And, SimpleClosure, whose tagline is “Shutting down sucks,” announced that it has raised $4 million less than six months after it raised $1.5 million in pre-seed funding. Both claim to make the process of closing a company more affordable, quicker and less complicated. It’s not just new startups getting into the helping companies wind-down game. Earlier this month, equity management startup Carta revealed that it was getting into the game as well with a new offering called Carta Conclusions. It’s important to note that this isn’t a new business. It’s just a more openly talked about one. And one that has recently become more attractive to investors.