The upcoming period is anticipated to witness a surge in startup closures, and it's highly probable that a significant number of the 50,000 venture capital-backed startups will face a severe reckoning

Let's look at Captain, a lending company, as an example. They did what many struggling startups do. First, they cut costs by laying off workers. Then, they tried hard to get more money by asking for investments or loans. When that didn't work, they started searching for someone who might want to buy their company. Captain hasn't decided to close for good, but they're in a tough spot.

Recur, once a successful NFT startup worth over $300 million, decided to shut down. Another small education tech startup called 101 also chose to stop operating.

The problem facing many startups is that getting investment money is really tough right now. There are more than 50,000 startups in the US that have gotten venture capital funding, double the number from 2016. All of them are at risk of running out of money because it's hard to find investors.

A report from PitchBook shows that the US venture capital market has had five straight quarters where there wasn't enough money compared to what startups needed. The last two quarters were even worse than any quarter in 2021.

Here's another way to think about it: In 2020 and 2021, too much venture capital money was going around. Almost 19,000 deals happened during that time. But in 2022, things started to slow down.

Now, the time between getting money from investors is back to how it was before the pandemic, about 1.5 years. So, if a company got money in early 2022 when there was lots of investment activity, they might need more money by the end of 2023.

Every company is different, depending on how much money they spend and if they got new funding. But for most startups, finding more venture capital money is really hard. So, they're left with two main options: sell the company or stop running it.

And it's not just venture capitalists who are being cautious. Even other types of firms that usually invest in startups, like Tiger Global and Coatue, have cut back. In 2021, Tiger Global did over 550 deals, but in 2023, they did fewer than 200. They also invested a lot less money.

According to Stanford, part of the problem is that these firms are moving away from investing in startups and doing more traditional investing.

As startups run out of money, they will try even harder to get venture capitalists to invest in them. In the words of IVP's Tom Loverro, late 2023 and 2024 will be tough for startups, maybe even worse than the 2008 financial crisis.