Yes, it’s true, Venture Capitalists are funding start-ups that help other start-ups shut down.

With a start-up failure rate of 90% there is no shortage of customers for companies that specialize in unwinding/dissolving other businesses. Wind-downs are emotionally hard and with the added issues of legal, financial, accounting, and HR the pain is doubled. About 3,200 private venture backed U.S. companies went out of business in 2023 and, it’s anticipated that this year will shutter more than last. So, enter the VC-backed firms that help failed start-ups return unused capital, auction and dispose of assets, or sell themselves off, making the process of closing a company more affordable, quicker, and less complicated for the owners and stakeholders.

 It’s more difficult than ever to startup a business.

Although not new, the activity of assisting in closing a business is increasing as more failures occur and VCs are smart enough to know when to cut their losses. Many VCs are now requesting would-be investees to prepare ‘shutdown analyses’ as part of their pitch stack. In fact, a company called, ‘Simple Closure‘ has designed a platform which automates the shutdown process. The system is used for returning capital to investors and negotiate their debt obligations to creditors. The Small Business Administration reports that over the last decade, between 700,00 and one million businesses have failed every year. So, there has been a need for companies that help startups with their closing-down process.

What happens to a company’s assets, intellectual property, code base, platform, or teams when it winds-down? Many times, these assets are acquired through asset purchase sales and/or what are termed, ‘acqui-hires – where the management team of the failed company is hired by the acquiring company. Most of these failed companies are in the real estate, high-tech, healthcare, fintech, or crypto industries and are in many cases acquired by established companies.

What is bad luck for some is opportunity for others.

By: James Lavorato, Entertainment Equipment Corp.