Start-ups are struggling to stay afloat --- venture capital is key, but at-risk now

(Yuliya, Reporter, The Wall Street Journal, “More Startups Throw in the Towel, Unable to Raise Money for Their Ideas,” pg online @ https://www.wsj.com/articles/more-startups-throw-in-the-towel-unable-to-raise-money-for-their-ideas-eff8305b //um-ef)

Yin said that she isn’t concerned that the wave of closures will have a serious negative effect on her fund’s returns. That is because the companies that recently folded were never marked to a high value in the portfolio, she said. Larger shutdowns could put further pressure on venture returns that have been falling overall. The yearly internal rate of return for venture firms was negative 7% in the third quarter of 2022, the lowest value since 2009, according to PitchBook Data. In recent months, several companies that raised significant venture funding have folded, including biotechnology company Goldfinch Bio, wine business Underground Cellar and fintech company Plastiq. California startup Zume, which was developing a robotic pizza maker and was once valued at $2.25 billion, recently entered a wind-down process handled by Sherwood Partners, a restructuring firm, according to Sherwood’s co-founder and co-president Martin Pichinson. Zume representatives couldn’t be reached. Zume, which was developing a robotic pizza maker, recently began winding down. Sherwood’s business increased by 50% through April 30 this year compared with the same period last year, Pichinson said. “And the storm hasn’t even started,” he added. The venture-capital boom in 2021, as well as pandemic-era government funding to small businesses, likely kept businesses alive for longer than they would have otherwise, some observers believe. Now that those funding sources have dried up, the failures are coming in. “Most of the companies we are handling now frankly deserved to have gone out of business a year or two ago,” said Barry Kallander, president of KallanderGroup, which provides corporate restructuring and dissolution services. Venture-backed businesses in the U.S. raised $346 billion in venture capital in 2021, according to the PitchBook-NVCA Venture Monitor report. Many are still surviving on that for now, investors and founders say. Some hope that they will be able to get through to a time when the market rebounds and they can consider tapping public markets. Technology stocks have started strengthening with the Nasdaq Composite Index up more than 26% for the year as of Thursday afternoon. The venture market, meanwhile, has been declining. Startups in the U.S. raised $37 billion in the first quarter of this year, down 55% from the first three months of last year. The longer the venture market stays depressed, the closer many startups get to the moment of truth.