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In one of the VC world\u2019s 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.<\/span><\/p>\n And with an estimated <\/span>90% startup failure rate<\/span><\/a>, there appears to be no shortage of potential customers for companies who specialize in unwinding other companies.<\/span><\/p>\n As one seed-stage investor <\/span>recently bemoaned<\/span><\/a> on X, \u201c<\/span>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.\u201d<\/span><\/p>\n Sadly, in 2024, it\u2019s an even bigger-than-typical pain point that needs addressing. <\/span>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 bu<\/span>t <\/span>haven\u2019t raised a round for years<\/span><\/a>. <\/span>Some 3,200 private venture-backed U.S. companies went out of business last year, according to Pitchbook data.<\/a> So it\u2019s safe to assume that 2024 will be another year where a lot of startups will shutter.<\/span><\/p>\n That\u2019s 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, <\/span>Sunset<\/span><\/a> announced it has raised $1.45 million in seed funding \u2014 mostly from a group of angel investors. And, <\/span>SimpleClosure<\/span><\/a>, whose tagline is \u201cShutting down sucks,\u201d announced that it has raised $4 million less than six months after it <\/span>raised $1.5 million in pre-seed funding<\/span><\/a>. Both claim to make the process of closing a company more affordable, quicker and less complicated.<\/span><\/p>\n It\u2019s 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 <\/span>Carta Conclusions<\/span><\/a>.<\/span><\/p>\n It\u2019s important to note that this isn\u2019t a new business. It\u2019s just a more openly talked about one. And one that has recently become more attractive to investors.<\/span><\/p>\n Martin Pichinson, co-founder of <\/span>Sherwood <\/span>Partners, which has been helping startups wind down since the dot.com bust in 2000, puts it like this: <\/span>\u201c<\/span><\/i>This industry is going to have more failure, but they [venture capitalists] are smart enough today to cut their losses.\u201d<\/span><\/p>\n Infinity Ventures co-founder and managing partner Jeremy Jonker, whose firm just led SimpleClosure\u2019s latest financing, notes that \u201cwe<\/span> are seeing a meaningful increase in startups facing challenges.\u201d<\/p>\n \u201cHistorically, these startups raised at robust valuations and have not grown into the metrics necessary to raise an up round,\u201d he wrote via email. \u201cAs such, they are facing the question of raising at a meaningful down round, selling the company, and\/or potentially shutting down the business. I think the addressable opportunity for SimpleClosure is sizable and increasing every day.\u201d<\/p>\n As is often the case, at least one of these startups was formed out of experience. The founders of Sunset \u2014 Brendan Mahony and Grant Rheingold \u2014 had themselves endured the pain of having to deal with a previously failed business and determined that there had to be a better way. Mahony started Toybox, a Y Combinator alumni company, in 2017 before selling it in 2020. He then founded another company, Contrast, that shut down a year later. Mahony and Rheingold started a company called Second Spoonful that ended up closing a year later. The pair teamed up to build Sunset in 2023 and recently raised money from a group of mostly angel investors in a nontraditional financing that involves offering a greater equity stake for referrals. Their goal, in their words, is to serve as \u201ca one-stop shop\u201d for businesses looking to wind down by <\/span>handling the legal, accounting and operational aspects that go into winding down.\u00a0<\/span><\/p>\n \u201cIn December (2022), a bunch of my friends from YC and elsewhere started hitting me up and asking for advice,\u201d Mahony told TechCrunch. \u201cSo I really just started out by helping friends, and chatting with them about some of the things I learned through my own dissolution\u2026Grant had a similar kind of story and we linked up.\u201d The pair did research for several months before officially starting Sunset last August. Hustle Fund\u2019s Eric Bahn, Weekend Fund\u2019s Ryan Hoover and <\/span>Layoffs.FYI <\/span><\/a>creator Roger Lee are among the company\u2019s backers. Customers span a variety of industries, including artificial intelligence, crypto and B2B SaaS, among others.<\/span><\/p>\n While Lee has co-founded two VC-backed startups, 401(k) provider <\/span>Human Interest<\/span><\/a> and <\/span>Comprehensive<\/span><\/a> (both of which are still operational), it was his work on the site Layoffs.fyi since the onset of the COVID-19 pandemic that has made him \u201ckeenly aware of the thousands of layoffs and startup shutdowns over the past few years,\u201d he told TechCrunch.<\/span><\/p>\n \u201cSunset\u2019s mission \u2014 to streamline the shutdown process and support founders in rebounding \u2014 resonates with me on a personal level,\u201d said Lee.<\/span><\/p>\n Dori Yona came up with the idea for SimpleClosure when building his last company after being<\/span> tasked by a board member to create a \u201cshutdown analysis.\u201d The process was so complex, Yona felt compelled to build a platform to help automate the shutdown process. <\/span>Demand has been so great that the young startup has already crossed seven <\/span>figures in annualized revenue, according to Yona. Since SimpleClosure\u2019s launch in February of 2023, the startup has seen its revenue grow by more than 14x and its customer base by over 6x. Those customers include <\/span>CRBN, Lance Global, Kripsy and Peak Health \u2014 all of which have completed the shutdown process.<\/span><\/p>\n \u201cI knew <\/span>that there was something unique to build here, but I didn\u2019t know how big it could be<\/span>,\u201d Yona said. \u201cWe\u2019re building a software technology platform to help automate and streamline the process. Think about it like a TurboTax for shutting down.\u201d<\/span><\/p>\n Both companies typically work with VC-backed tech startups, but not exclusively.<\/span><\/p>\n \u201cMost are returning capital to investors,\u201d Mahony explained. \u201cSeveral companies have potentially millions in debt and need to negotiate that debt obligation with their creditors so we work on doing that with them as well.\u201d<\/span><\/p>\n Notably, he said, many companies have decent ARR but realized they just weren\u2019t \u201cventure scale,\u201d and thus had to wind down.<\/span><\/p>\n Witnessing so many companies go through that problem made Mahony and Rheingold a bit reluctant to raise a lot of venture funding. So when Sunset recognized it needed some capital to scale its team, the pair decided to mostly take money from \u201ca lot of prominent angels,\u201d working closely with Hoover on a structure \u201cthat will potentially pay out dividends to investors over time.\u201d<\/span><\/p>\n \u201cWe also purposefully really wanted to raise from folks who had strong distribution networks in the tech world,\u201d Mahony sai<\/span>d. \u201cTo potentially incentivize them to send companies our way, we opened up a stock option pool solely for our investors a<\/span>nd when they refer us customers or channel partners, we issue them further stock options based on the contract value of those customers.\u201d<\/span><\/p>\n Meanwhile, Infinity Ventures led SimpleClosure\u2019s recent \u201coversubscribed\u201d fundraise, which also included \u201cstrong\u201d participation from <\/span>Anthemis Group, Foxe Capital and existing backers. A number of new angel investors also joined the round, including executives from software companies such as Deel and Intuit, as well as venture firm partners.\u00a0<\/span><\/p>\n Infinity Ventures\u2019 Jonker believes that SimpleClosure is building a platform \u201caround a process that has historically been manual and cumbersome.\u201d Plus, its mission benefits the whole venture ecosystem, in his view.<\/span><\/p>\n \u201cAt Infinity, it is our passion to support entrepreneurs and foster the entrepreneurial spirit. The faster we can help these builders to close one chapter, the quicker we get them back to their next endeavor,\u201d he wrote via email. \u201cThis benefits all stakeholders involved, including entrepreneurs, investors, employees and governments.\u201d<\/span><\/p>\n \u201cThere\u2019s <\/span>data that the Small Business Association puts out that says historically over the last decade, there\u2019s been between 700,000 and a million companies that have shut down every year,\u201d Yona told TechCrunch. \u201cTo me that says that is not necessarily a seasonal business. <\/span>These problems have existed for decades, and it\u2019s just kind of been under the radar\u2026 <\/span>There is this consistent need of a company that can help with the process.\u201d<\/span><\/p>\n Carta did not respond to requests for comment about its new product. But in a blog post<\/a>, CEO and co-founder Henry Ward wrote that <\/span>Carta Conclusions was aimed at helping founders \u201cwho have decided they want to dissolve their company.\u201d<\/span><\/p>\n One thing that many of us wonder about is what exactly happens to a company\u2019s assets and intellectual property when it is wound down. Surprisingly (or not), some of these startups still have some positive outcomes for the main stakeholders.<\/span><\/p>\n For example, many companies turning to Sunset so far have approached the company while currently in the process of selling their assets.<\/span><\/p>\n In many cases, \u201cthey\u2019re already talking to potential buyers, doing an asset purchase sale or drafting an asset purchase agreement,\u201d Mahony said. \u201cBut even in those cases, you\u2019ll still have a stay-behind entity that needs to get wound down.\u201d<\/span><\/p>\n Sunset recently partnered with <\/span>Acquire.com<\/span><\/a> because, as Mahony puts it, many acquisitions that happen on that platform are also asset purchase sales or acqui-hires.<\/span><\/p>\n \u201cSo we do work with companies that have really happy endings,\u201d he said. \u201cIt\u2019s not all doom and gloom.\u201d<\/span><\/p>\n In some cases, instead of doing a stock purchase, where an acquirer would buy all the stock of a company, some startups opt to sell just the intellectual property, code base, trademarks, the name and domain name.<\/span><\/p>\n \u201cWe\u2019ve helped companies auction their IP,\u201d Mahony said. Those auctions can either be closed, where it\u2019s only stockholders that can have a shot at buying it, or they can be more open, where \u201ceveryone can put in their bid for the IP.\u201d<\/span><\/p>\n In other cases, founders are going the stock purchase route and then Sunset can help with tax implications and any \u201cpotential liabilities,\u201d Mahony said.<\/span><\/p>\n \u201cYou can imagine there are a lot of folks out there who are interested in buying up some of these startups,\u201d he added, \u201cwho again, may be doing really well and are a great business but aren\u2019t necessarily venture scale. We\u2019ve helped initiate introductions [for founders] to those types of buyers.\u201d<\/span><\/p>\n Most startups are Delaware corporations, and based on Delaware law, Yona said, founders are supposed to try and monetize those assets. SimpleClosure too also helps founders that are trying to sell the company\u2019s code base, platform or team.<\/span><\/p>\n \u201cThey\u2019re really, really trying to exhaust asset sales,\u201d he said. \u201cBut the interesting thing is that even if you do go through an asset sale, you still need to wind down the shell entity or the corporation that created it.\u201d<\/span><\/p>\n In some cases, founders or investors purchase the IP.<\/span><\/p>\n \u201cWe don\u2019t always know the intent, but we have seen cases where\u201d using that IP to potentially start another business \u201cwas the plan,\u201d Yona said.<\/span><\/p>\n While SimpleClosure is mainly focused on tech startups (bootstrapped to Series C stage) in industries such as crypto, real estate, healthcare and fintech, Yona noted that the company has been \u201cgetting a lot of demand\u201d from non-startups.<\/span><\/p>\n Notably, though, when it comes to fintech, it appears that \u201ca lot of consolidation\u201d is happening, Yona said.<\/span><\/p>\n \u201cA lot of companies are doing asset sales that you just don\u2019t hear about,\u201d he added.<\/span><\/p>\n For Infinity Ventures\u2019 Jonker, SimpleClosure is tackling a historically \u201c<\/span>opaque, manual and cumbersome process that changes meaningfully by state and by industry.\u201d<\/span><\/p>\n \u201cAlso, shutting down a company is somewhat taboo, despite the fact that more than 1 million businesses fail in the U.S. each year,\u201d he said.\u00a0\u00a0<\/span><\/p>\n Want more fintech news in your inbox? Sign up for TechCrunch Fintech <\/span><\/i>here<\/span><\/i><\/a>.<\/span><\/i><\/p>\n<\/p><\/div>\nWhat startup shutdown companies do<\/h2>\n
Helping startups auction their assets or their whole company<\/h2>\n