In one of the great ironies of the venture capital world, investors have recently been clamoring to back startups that help other startups close. So, whether a venture capital-backed startup succeeds or flops, investors themselves find ways to generate returns for their limited partners while also helping founders move forward more quickly.
And with appreciation 90% startup failure rateThere seems to be no shortage of potential clients for companies that specialize in dismantling other companies.
As a single seed stage investor He recently bemoaned “on x”The wind is sad, emotional and hard enough. Add to that the legal, financial, and logistical work, and the pain doubles. I feel for the founders who are going through this.”
Unfortunately, in 2024, this will be a bigger pain point than usual that needs to be addressed. While the market was flooded with venture capital in 2021, funding has since slowed globally. For example, Crunchbase News recently identified a sample of 28 private companies with a maximum value of $1 billion or more.R I haven't lifted a tour for years. About 3,200 American companies backed by private ventures stopped operating last year, according to PitchBook data. So it's safe to assume that 2024 will be another year where a lot of startups will shut down.
Obviously, this is why investors start backing startups that help other VC-backed startups return unused capital, auction or otherwise dispose of their assets, or sell themselves wholesale to shut them down. Today alone, sunset It announced that it has raised $1.45 million in seed funding – mostly from a group of angel investors. And the, Simple closure, A company whose slogan is “Lockdown Sucks” announced it had raised $4 million less than six months later It raised $1.5 million in seed funding. Both claim to make the company closing process less expensive, faster and less complicated.
It's not just new startups getting into the corporate help game. Earlier this month, stock management startup Carta revealed that it had also entered the game with a new offering called Carta conclusions.
It is important to note that this is not new work. It's just more frank talk about one. Which has recently become more attractive to investors.
Martin Pitchinson, co-founder of Sherwood The partners, who have helped startups scale back since the dot.com crash of 2000, explain it this way: “This industry will face more failure, but they… [venture capitalists] “They are smart enough today to cut their losses.”
Jeremy Junker, co-founder and managing partner of Infinity Ventures, whose firm just led SimpleClosure's latest financing, points out that “ “We are seeing a significant increase in the number of startups facing challenges.”
“Historically, these startups have risen at strong valuations and have not developed the metrics necessary to increase their value,” he wrote via email. “As such, they face the issue of raising capital in a meaningful down round, selling the company, and/or potentially shutting down the company. I believe the opportunity for SimpleClosure is significant and growing every day.”
What decommissioning companies do
As is often the case, at least one of these startups was founded through experience. Sunset's founders – Brendan Mahoney and Grant Rheingold – had endured the pain of having to deal with a previously failed company and decided there had to be a better way. Mahoney started Toybox, a Y Combinator alumni company, in 2017 before selling it in 2020. He then founded another company, Contrast, which closed a year later. Mahoney and Ringgold created a company called Second Spoonful, which ended up closing after a year. The pair teamed up to build Sunset in 2023 and recently raised money from a group of mostly angel investors in an unconventional financing that involved offering a larger stake of equity to referrals. Their goal, as they put it, is to serve as a “one-stop shop” for companies looking to wind down their business Dealing with the legal, accounting and operational aspects involved in the liquidation process.
“In December (2022), a group of my friends from YC and elsewhere started attacking me and asking for advice,” Mahoney told TechCrunch. “So I just started helping out friends and chatting with them about some of the things I learned through breaking up my relationship… Grant had a similar story and we connected.” The pair researched for months before the sun officially began to set last August. Eric Bahn of Hustle Fund, Ryan Hoover of Weekend Fund, and Layoffs. For your information Content creator Roger Lee is among the company's backers. Clients span a variety of industries, including AI, cryptocurrency, B2B SaaS and more.
While Lee co-founded two venture capital-backed startups, a 401(k) provider. Human interest And comprehensive (Both are still running), and it was his work on Layoffs.fyi since the start of the Covid-19 pandemic that made him “acutely aware of the thousands of layoffs and startup closures over the past few years.” He told TechCrunch.
“Sunset’s mission — to simplify the closing process and support founders in recovery — resonates with me on a personal level,” Lee said.
Dori Yona came up with the idea for SimpleClosure when he was building his last company after He was tasked by a board member to create a “shutdown analysis.” The process was so complex, that Yuna felt compelled to build a platform to help automate the decommissioning process. The demand has been so great that the young startup is already over seven The numbers are in annual revenue, according to Yuna. Since launching SimpleClosure in February 2023, the startup has seen its revenue grow more than 14x and its customer base more than 6x. These include clients CRBN, Lance Global, Kripsy, and Peak Health – all of which have completed the closing process.
“I knew That there was something unique to be built here, but I didn't know how big“We are building a software technology platform to help automate and simplify the process,” Yuna said. Think of it like TurboTax for closing.
Both companies typically work with venture capital-backed technology startups, but not exclusively.
“Most of them return capital to investors,” Mahoney explained. “Many companies have potentially millions in debt and need to negotiate that debt obligation with their creditors, so we work to do that with them as well.”
He said that it is worth noting that many companies had a good ARR, but realized that they were not up to the “project volume” and therefore had to wind down their business.
Seeing so many companies going through this problem made Mahoney and Ringgold a little hesitant to raise much funding for the project. So when Sunset realized it needed some capital to scale its team, the pair decided to source money mostly from “a lot of high-profile angel investors,” and work closely with Hoover on a structure that would “potentially pay dividends to investors over time.”
“We also intentionally wanted to tap into people who have strong distribution networks in the technology world,” Mahoney says.Dr.. “To incentivize them to send companies our way, we opened up a pool of stock options only to our investorsWhen customers or channel partners refer us, we issue them additional stock options based on the contract value of those customers.
Meanwhile, Infinity Ventures led SimpleClosure's recent oversubscribed fundraising campaign, which also included “strong” participation from 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 corporate venture partners.
Infinity Ventures' Junker believes SimpleClosure is building a platform “around a process that has historically been manual and cumbersome.” Additionally, its mission benefits the entire project ecosystem, in his view.
“At Infiniti, our passion is to support entrepreneurs and foster entrepreneurship. The faster we can help these builders close one chapter, the sooner we can get them back on to their next endeavor,” he wrote via email. “This benefits all stakeholders involved, including This includes entrepreneurs, investors, employees and governments.”
“there “The data that the Small Business Association puts out says historically over the last decade, there have been between 700,000 and 1 million businesses closing every year,” Yuna told TechCrunch. “For me, that means this is not necessarily a seasonal business. These problems have been around for decades, and they're just kind of under the radar… There is a continuing need for a company that can assist in this process.”
Carta did not respond to requests for comment on its new product. But in a blog post, CEO and co-founder Henry Ward wrote just that Carta's conclusions were intended to help founders “who have decided they want to dissolve their company.”
Helping startups sell their assets or their entire company at auction
One thing many of us wonder is what exactly happens to a company's assets and intellectual property when it is liquidated. Surprisingly (or not), some of these startups are still achieving some positive results for key stakeholders.
For example, several companies turning to Sunset have so far approached the company while they are currently selling their assets.
In many cases, “they're already talking to potential buyers, doing asset purchase sales or drafting an asset purchase agreement,” Mahoney said. “But even in those cases, you will still have an entity that stays behind that needs to be eliminated.”
Sunset recently partnered with acquisition.com Because, Mahoney says, many of the acquisitions that happen on that platform are also asset purchase sales or acquired hires.
“So we work with companies that have really happy endings,” he said. “It's not all doom and gloom.”
In some cases, instead of a stock buyout, where an acquirer buys all of the company's shares, some startups choose to sell just the intellectual property, code base, trademarks, name, and domain name.
“We have helped companies sell their intellectual property at auction,” Mahoney said. These auctions can be either closed, where only shareholders can have a chance to buy them, or they can be more open, where “everyone can submit their bid for the intellectual property.”
In other cases, founders go the route of buying stock and then Sunset can help deal with the tax implications and any “potential liabilities,” Mahoney said.
“You can imagine there are a lot of people interested in buying some of these startups, who, again, may be really well-positioned and considered a great business but are not necessarily at the scale of the venture,” he added. “We helped with the introductions.” [for founders] For those types of buyers.”
Most startups are Delaware corporations, and based on Delaware law, founders are supposed to try to monetize those assets, Yuna said. SimpleClosure also helps founders who are trying to sell the code base of a company, platform, or team.
“They are really trying to exhaust asset sales,” he said. “But the interesting thing is that even if you sell the assets, you still need to wind up the shell entity or the company that created it.”
In some cases, founders or investors purchase the intellectual property.
“We don't always know the intent, but we've seen cases where 'using this IP to start another business' was the plan,” Yuna said.
While SimpleClosure primarily focuses on technology startups (presumed to the Series C stage) in industries like cryptocurrency, real estate, healthcare, and fintech, Yuna noted that the company “gets a lot of demand” from non-startups.
Yuna said it's worth noting that when it comes to fintech, there seems to be “a lot of consolidation” happening.
He added: “A lot of companies are doing asset sales that you don't hear about.”
According to Jonker of Infinity Ventures, SimpleClosure addresses a historic problem.”An opaque, manual, and cumbersome process that changes significantly by country and industry.
“It's also somewhat taboo to close a company, despite the fact that more than a million businesses fail in the United States every year,” he said.
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