In this article, we will be covering the biggest startup failures in the world. We will cover different aspects that have impacted the startup industry. If you want to skip our analysis, go directly to the 5 Biggest Startup Failures in the World.
Startups are young companies founded with a new idea looking to disrupt the market. Entrepreneurs are driven by innovation and want to create entirely new products or services to cater to existing deficiencies in the market. We can also say that a startup has two main characteristics; innovation and growth. A startup’s ability to scale really defines its potential impact on different markets. That’s why most of the startups are known for the disruption in their respective industries. But, not all startups succeed and the majority of them are prone to failure. According to Startup Genome, about 90% of startups completely fail, while 1.5% of startups end up with a successful exit of $50 million across the top eight U.S. startup networks. The data from the U.S. Bureau of Labor Statistics shows that almost 20% of new businesses fail within their first year. In Startup Genome’s Global Startup Ecosystem Report 2023, the President of Global Entrepreneurship Network (GEN) Jonathan Ortmans said:
“Entrepreneurship is messy, and while ecosystems benefit from systems thinking, big and creative ideas bubble up from disorder and serendipity.”
Aftereffects of COVID-19 on Startups
Where online operations soared during the pandemic, many startups also had a good time. According to Startup Genome’s report, for tech startups 2021 was a benchmark with extensive global growth. The growth trend for startups continued through the first quarter of 2022 before the COVID-19 impacts started to implode. Gradually, the supply-chain disruptions became a bigger global issue led by higher interest rates and an increase in inflation. Things started to escalate with the Russia-Ukraine war which led to the European energy crises creating economic uncertainty and instability in markets.
Due to uncertain economic conditions, investors have halted their investments in startups, in large numbers. The Startup Genome report highlights that venture capital (VC) funding started to contract in the first quarter of 2022. The VC funding in Q1 2022 plunged 13% compared to the total amount raised in Q4 2021. Overall, 2022 was a drastic year for startups as the VC investment fell by 35% year over year. The fear of recession across the Americas and Europe has kept VC investors on the back foot. Recessions dry up sources of capital, and VC investors and banks are hesitant to provide funds to startups. This results in fewer funding rounds, lower valuations, and takes more time to materialize. Therefore, economic vulnerabilities expose startups to wavering challenges such as scalability issues and increases in costs.
Downfall in VC Investment
The downfall in VC funding has continued in 2023. On April 5 Crunchbase posted the VC funding data for the first quarter of 2023. Global VC funding dropped 53% to $76 billion year over year in Q1 2023, including the two massive funding rounds in the U.S. Tech giant Microsoft Corporation (NASDAQ:MSFT) invested around $10 billion in OpenAI to enhance ChatGPT services in the AI world. Microsoft Corporation’s (NASDAQ:MSFT) further investment in OpenAI will strengthen its Azure cloud and also provide OpenAI with designated supercomputers to run complex AI models and enhance its research. According to Bloomberg Intelligence analyst Anurag Rana, Microsoft Corporation (NASDAQ:MSFT) will potentially benefit from this deal and expand its cloud business. “This could even help Microsoft close the gap further with AWS,” added Rana, pointing to Amazon.com Inc.’s (NASDAQ:AMZN) cloud service. In addition, this year’s second big investment was Stripe Inc.’s $6.5 billion funding round, which was announced by the company on March 15. Apart from these two big investments in the U.S., it has been a dry spell so far.
Similarly, VC investments in Latin America were down by 84% in Q1 2023, year over year. That’s a drastic drop considering Central and South America were ranked as one of the fastest-growing startup investment regions in the world, a year ago. We can understand the investment sentiment in the region from SoftBank Latin America Ventures’ participation in only two rounds in 2023, compared to 34 rounds in 2021 and 2022. While European startups only raised $10.6 billion in funding in Q1 2023, as American investors retreated. Whereas, VC funding in Asia dropped to a three-year low in Q1 2023 as it fell to $15.2 billion, declining 57% year over year. However, it doesn’t mean that investment in the startup world has died altogether. If there are projects that have clear signs of revenue growth and profitability, investors do take risks in investing in the idea.
Successful Startups
During the recession years of 2008 and 2009, there was a lot of uncertainty in the market. However, a few startups still made it to the top and increased their valuation over the years. The prominent examples of startup successes in a recession include Block, Inc. (NYSE:SQ) completed its first fund round in 2009, Spotify Technology SA (NYSE:SPOT) raised a Series A in 2008, and Flipkart in 2009. On May 9, 2018, Walmart Inc. (NYSE:WMT) announced that it was becoming the largest shareholder in Indian e-commerce firm Flipkart. Later that year, Walmart Inc. (NYSE:WMT) acquired a 77% stake in Flipkart for $16 billion. On July 30, the Wall Street Journal reported that Walmart Inc. (NYSE:WMT) has paid $1.4 billion to buy shares of Flipkart owned by Tiger Global Management. Flipkart has been running a successful business in India since its launch in January 2007. In September 2009, Flipkart received its first funding of $1 million from Accel Partners.
Spotify Technology SA (NYSE:SPOT) is another success story in the startup world that has disrupted the music world. As of August 30, Spotify Technology SA (NYSE:SPOT) had a market cap of $28.13 billion. For the music industry, Spotify has created a huge platform for artists to get their talent recognized. Millions of users all over the world visit the music platform on a monthly basis. Some of the top countries by Spotify users are Luxemburg, Poland, Iceland, and Spain – to name a few.
Multinational firm, Block Inc. (NYSE:SQ) is known for its financial services. Launched as Square, in 2021 the company changed its name to Block Inc. (NYSE:SQ). Growing into a top-ranked financial services platform, Block also offers banking services through Square’s banking affiliate, Square Financial Services, Inc.
Failure of startups has many reasons and economic uncertainty is one of the biggest reasons why startups fail. In recent times, the COVID-19 pandemic has badly affected startups, leading to low investments and cash problems. Startups can work on their roadmaps, adapt to ongoing situations, and understand the demands of the markets. Low-cost startups have a high rate of survival considering the low VC investments and high inflation and interest rates.
With this in mind, let’s take a look at the biggest startup failures in the world.
Antonio Guillem/Shutterstock.com
Our Methodology
For the biggest startup failures in the world, we took the failed startup’s data from CB Insights, Startup Graveyard, TMS Outsource, Crunchbase, and Failory. We chose the consensus method for this topic and took startups that were listed in at least two of our sources. We then ranked the list based on total disclosed funding, in ascending order. Here is the list of the 15 biggest startup failures in the world.
15 Biggest Startup Failures in the World
15. 99Dresses
Total Disclosed Funding: $105,650
The e-commerce platform, 99Dresses was founded in 2010 and backed by four investors. At the time, an 18-year young entrepreneur, Nikki Durkin came up with the idea of 99Dresses. 99Dresses winded its business in 2014 and became one of the biggest startup failures in the world.
Despite a large ratio of startups failing, there are notable startups that have become global brands such as Block, Inc. (NYSE:SQ), Spotify Technology SA (NYSE:SPOT), and Flipkart, now owned by Walmart Inc. (NYSE:WMT).
14. EventVue
Total Disclosed Funding: $455,000
EventVue aimed to improve conference networking by creating online communities. Rob Johnson and Josh Fraser founded the startup in 2007, which was backed by 10 investors. Three years later in 2010, EventVue had to shut its operations, making it one of the biggest startup failures in the world.
13. 37Coins
Total Disclosed Funding: $525,000
Founded in 2014, 37Coins came into the market with a mission to make Bitcoin (BTC) easy and accessible to everyone. Founders Jonathan Zobro, Songyi Lee, and Johann Barbie soon had to close their operations in 2015. 37Coins ranks 13th on our list of the biggest startup failures in the world.
12. Exec
Total Disclosed Funding: $3.3 Million
Justin Kan, Daniel Kan, and Amir Ghazvinian founded Exec with the idea of providing online cleaning services. Exec was backed by 14 investors, but it failed and closed the business in 2014. Exec ranks among the biggest startup failures in the world.
11. Monitor110
Total Disclosed Funding: $16 Million
Founded in 2005 by Roger Ehrenberg, Monitor110 was a data analytics firm. Monitor110 was backed by four investors and it was shut down in 2008. Monitor110 is one of the biggest startup failures in the world.
10. Homejoy
Total Disclosed Funding: $38.7 Million
Founded by Adora Cheung and Aaron Cheung, Homejoy was an online platform connecting professional cleaners. Homejoy raised its funding over five rounds backed by 15 investors. The startup failed to continue its operations and closed in 2015. Homejoy is ranked 10th on our list of the biggest startup failures in the world.
9. Doppler Labs
Total Disclosed Funding: $51.1 Million
The audio technology startup was founded by Noah Kraft and Fritz Lanman. Doppler Labs launched with the idea of creating a revolution with its Here One earbuds. Doppler Labs couldn’t cope with its promises and failed to reach a wider audience. Doppler Labs is one of the biggest startup failures in the world.
8. Peppertap
Total Disclosed Funding: $51.2 Million
Peppertap was founded by Navneet Singh and Milind Sharma in 2014. Peppertap wanted to take grocery shopping to the next level, but it failed to do so. Placed at eighth on our list, Peppertap is one of the biggest startup failures in the world.
7. Shyp
Total Disclosed Funding: $62.1 Million
Founded in 2013 by Kevin Gibbon, Jack Smith, and Joshua Scott, Shyp was a shipping company backed by 35 investors. Shyp closed its operations in 2018 and became one of the biggest startup failures in the world.
6. Yik Yak
Total Disclosed Funding: $73.5 Million
In 2013, the anonymous chat app was launched seemingly having a promising future. However, Yik Yak couldn’t cope with the competition and restrictions. In 2017, Yik Yak shut down the app. Yik Yak makes it to our list of the biggest startup failures in the world.
Some startups fail and some go on to become global brands. Startups that became a global hit include Block, Inc. (NYSE:SQ), Spotify Technology SA (NYSE:SPOT), and Walmart Inc.’s (NYSE:WMT) Flipkart.
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Disclosure: None. 15 Biggest Startup Failures in the World is originally published on Insider Monkey.