Boom To Bust: Why Startups Are Skyrocketing—And So Are Bankruptcies

According to Carta, a provider of services to private companies, 254 venture-backed startups went bankrupt within the first quarter of 2024. That is seven times higher than the rates in 2019.

Despite an influx of startups across America, the number of business owners filing for bankruptcy has risen equally.

The number of Americans who have turned to entrepreneurship has increased significantly this year. With more than three million new business applications filed in 2024, Inc. reports that this has outpaced the level of eight of the last 10 years, with 420,802 applications filed in July. Currently, the monthly average sits at a rate of 92% higher than numbers before the COVID-19 pandemic.

According to Carta, a provider of services to private companies, 254 venture-backed startups went bankrupt within the first quarter of 2024. That is seven times higher than the rates in 2019.

Yet, there is still a rising problem around startups closing shop, frequently leaving hundreds of people without employment.

“The number of company closures has been steadily rising for the past two years,” said the company in a statement. “Between Q1 2022 and Q1 2023, the number of shutdowns experienced a 124 percent year-over-year increase. Between Q1 2023 and Q1 2024, the count grew by another 58 percent.”

A September 2023 survey conducted by the Pew Research Center revealed that more than 1 in 5 Black adults in the States believe that “owning a business is essential to financial success.” There are an estimated 3.7 million Black-owned businesses in the U.S.; in 2021, roughly 3% of U.S. businesses were Black-owned.

In 2023, Inc. reports that startups “saw the lowest dollar amount of venture funding since 2018,” which many believe is directly linked to the increasing rate of failed businesses nationwide. With higher rates and bank failures, traditional lending is not an option for many businesses, especially Black-owned companies, who have been widely omitted from financial support when scaling and growing a business.

Due to systemic racism and lack of acces s to resources needed to survive and grow, Black-owned businesses, unfortunately, know all too well what it is like to be denied funding from VC firms, and now other businesses are experiencing the same as investors have pulled back from funding.

Experts cite the overall state of the economy as the reason for the decline in VC firms backing startups across America. Still, DropboxDocSend senior data and trends analyst Justin Izzo remains hopeful for the future.

“If a company plans to raise money in the next six to eight months, I believe the climate will be better than it has been over the past 18 months,” Izzo told Inc. “There’s more likely than not to be a steady drip of funding, then turning more into a stream.”

Still, the alarming bankruptcy rates aren’t stopping aspiring entrepreneurs from hoping to receive a slice of the “American dream” pie.