A primer on startup shutdowns

This is a guest post by Dori Yona, founder of SimpleClosure.  Nobody wants to talk about shutting down their company but nearly every repeat founder I know had to learn this the hard way–including some of the most successful. Dori just raised a $15mm Series A to solve this for more founders.

I had an epically shitty time at the end when I was a first time founder. After getting a respectable cash offer, and having an investor and board member turn it down, things mostly went sideways. Then COVID happened and they went steeply downhill. I now recognize that I was led by fear–I didn’t know how to shut down, and I feared the unknown as much as I feared failure. When I was shopping the company at the end, literally every founder I spoke with had a similar story.

I hope this isn’t on your mind, and you can just file this email away for some future date (never?) when it might be. If you are thinking about this, now or in the future, Dori does an incredible job of breaking down all the options, and the trends. Not to mention I think his startup is solving an important problem for founders, one that needs solving. If nothing else it means you can push it a little further with the cash you have, than if you had to reserve enough to pay lawyers to do this work.

Startups often begin with big dreams and brighter futures, yet the reality is that most will ultimately fail. When the dream fades, shutting down can be more complicated–and more stressful–than anyone expects. In our current funding climate, learning how to execute an orderly and compliant shutdown is a critical skill for both founders and VCs.

Startup failure rates are high, and rising

It’s not news that the vast majority of startups will fail. In fact, an estimated 90% of startups ultimately don’t make it. U.S. Labor statistics show about 20% of small businesses fail within their first year, around 50% by the fifth year. 

Venture-backed startups are no exception–one study found 75% of VC-funded companies never return cash to investors, and in 30 - 40% of cases investors lose their entire investment. In short, failure is a common outcome in the startup world.

What’s changing lately is how many startups are shutting down in the current market downturn. After the funding boom of 2020 - 2021, a wave of closures is now hitting. Data shows a sharp jump in shutdowns over the past two years. AngelList tracked 364 startup “wind-downs” in 2024 vs. 233 in 2023 (a 56% spike); and PitchBook data indicates over 3,200 private venture-backed U.S. companies went out of business in 2023 alone.

These numbers underscore that startup failures have surged amid the tougher market conditions of 2023 - 2024. Venture investors themselves have warned of a coming “tsunami of startup shutdowns,” and the first waves have already hit. The root causes are clear: the easy money of 2020 - 2021 led to too many companies getting funded at high valuations, and by 2023 many couldn’t raise more cash or find exits. As one analyst noted, “every startup sector has seen shutdowns… the main cause of the increase is macro-economic  -  interest rate changes and the lack of available venture funding in 2023 and 2024”. With VC funding tight and IPO/M&A markets largely shuttered, many startups that might have been acquired or refinanced are instead being forced to wind down operations.

Not even heavily-funded companies are immune. For example, in early 2025 Pandion, a logistics startup that had raised about $125 million, abruptly announced it was shutting down. And in December 2024, proptech company EasyKnock  -  backed by $455 million in funding  -  suddenly ceased operations. These high-profile failures illustrate that even “unicorns” can face a dead end when markets sour. Overall, industry observers expect 2025 to be another tough year for startup survival as the backlog of overfunded ventures from the boom era either find a path to sustainability or run out of runway.

Shutting down is complex, costly, and time consuming

For those companies that do have to close up shop, the next steps are rarely simple. A proper shutdown involves a gauntlet of legal, financial, and logistical tasks. Founders must file dissolution paperwork in the company’s state(s) of incorporation, cancel business licenses and EIN/tax IDs, settle outstanding debts and vendor bills, pay final payroll and severances, distribute any remaining assets or cash, and more. Skipping steps can have serious consequences: if certain taxes or liabilities aren’t handled, directors and investors could face personal liability (piercing the corporate veil). In short, shutting down a company “properly” is a project in itself, typically requiring attorneys, accountants, or specialized advisers to avoid mistakes.

You won’t ever need to shut down if you have a healthy pipeline and a lot of customers. We just launched Skyp to help founders like you get more customers, with less work.

How long and how much does it take to wind down a startup? The answer varies by method, but traditional approaches have been quite expensive and slow. Firms that specialize in business liquidations or bankruptcy can charge upwards of $75,000 and take as long as a year to complete the closure process. For example, a formal Chapter 7 bankruptcy involves court proceedings, trustee oversight, and legal fees  -  a process that often drags on for 6 to 12 months (or more) and can easily cost six figures in professional fees. Even an assignment for the benefit of creditors (ABC)  -  a common out-of-court alternative to bankruptcy used in Silicon Valley  -  will typically incur tens of thousands in costs paid to the assignee handling the liquidation, though it can wrap up faster than a court process.

By contrast, newer “managed wind-down” services aim to streamline shutdowns in a fraction of the time and cost. For instance, the process could be up to 85% less expensive than a typical shutdown and returns investor funds 5 times faster. While traditional advisors might take months just to formulate a plan, these services often can generate a custom shutdown plan within days or weeks. 

It is not unusual for the startup’s entire wind-down to be completed in about five months  -  significantly quicker than the 12+ months a bankruptcy might have taken. The cost structure is often a flat or sliding-scale fee that ends up being a “fraction of the cost” of hiring lawyers and accountants piecemeal.

Of course, not every failing startup has cash on hand to even pay for a shutdown. Those startups that do return funds tend to only recover around 10% of the total money raised (a recent analysis found founders who returned money had about $630k left on average, roughly 10% of their capital). This means many wind-downs are done on a shoestring budget. It’s telling that in some cases VCs or board members will cover the shutdown service fee to ensure it gets done right. Investors have a vested interest in an orderly dissolution  -  it can return any remaining cash faster and avoid lingering liabilities that might haunt directors later.

I started SimpleClosure because, after my board asked me to explore shutting down my previous company, I quickly learned how scattered, expensive, and time-consuming the process can be. Our platform pulls the many loose threads - final payroll, vendor close-outs, state and federal filings, cap-table payouts - into one guided flow, so founders and investors can wrap things up without becoming experts in dissolution law.

Over the past two years I’ve watched demand soar. More startups are running out of runway, yet they still want a clean exit that protects directors, returns any leftover cash quickly, and lets the team move on. A software‑driven approach keeps costs predictable and shortens the timeline from months to weeks, which is why managed wind‑downs are fast becoming the default for many venture‑backed companies.

That said, SimpleClosure is just one path. The “right” option still depends on each startup’s liabilities, remaining assets, and board preferences. With that in mind, let’s look at how the three main shutdown routes - managed dissolution, an Assignment for the Benefit of Creditors (ABC), and bankruptcy - stack up on complexity, cost, and finality.

Wind-down options: managed dissolution vs. ABC vs. bankruptcy

There are three ways to wind down businesses properly in the US. In order of simplest and most private to most public and costly, they are voluntary dissolution, assignment for the benefit of creditors, or bankruptcy. Let’s cover each in detail.