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Good morning 👋

Clay here. I’m back from Nicaragua. Feels good to be back in the States.

Mid-August = slow news cycle, and there wasn’t a whole lot going on in the venture world this time of year.

There is some data on startup failure rates, so I’ll break that down and give my two cents.

If you think I’m right, wrong, way wrong on any of the stories this week, let me know in the comment section.

This Week in Venture

VC-backed businesses are failing at record rates 📉

Fifty-four companies with private equity or VC backing have already filed for bankruptcy protection this year.

If we continue at this pace, this year will have more venture-backed bankruptcies than the previous record (95 in 2010).

Why it matters: Fundraising is not great brutal right now, and founders are dealing with a triad of things working against them:

Venture activity has slowed: Unless you’re living under a rock, you already know this. Less dollars are flowing into the system, and LPs are under more pressure to make smarter investments.

Higher emphasis on profitability (earlier): Profitability used to be a forgotten metric for early-stage investors, and growth at all costs became a universal norm (this may go down as some of the worst general advice ever given, but that’s a different story). Not being profitable makes you more reliable on capital markets, so unprofitable businesses are often the first to go under or take unfavorable financing terms.

Rate hikes are affecting levered companies: This doesn’t impact early-stage founders, but it has made it harder for growth / later-stage businesses to fulfill their debt payments and secure new debt from lenders.

If you’re looking for trends on the startups that have failed, most of the bankruptcies are either healthcare (15) or consumer goods (12) companies. Six of the companies that filed for Chapter 11 are information technology companies.

What happens next: We still don’t know where things go from here, but we’ve had enough conversations to know that the venture hive mind is shifting.

Investors are re-thinking some of the frameworks used by huge companies from the past decade.

Move fast and break things? ❌

Spend as much you can to boost revenue? ❌

Ignore unit economics? ❌

Worry about profitability later? ❌

Boring businesses that make money? ✅

Higher profitability per employee? ✅

Finding alternative marketing channels for sustainable growth? ✅

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