The startup squeeze

The startup world is facing rougher seas. Over the past year, the number of fledgling companies closing shop has surged by 60%, and startup bankruptcies are now 7X higher than in 2019, according to data from Carta reported by the FT.

With higher interest rates, funding has dried up for many startups. Anyone involved in AI may still be having success fundraising, but in many other industries the landscape is significantly more challenged than it has been in recent years. Indeed, data from PitchBook reveals that AI and machine learning startups raised some $27 billion last quarter — nearly half of all VC investment.

With dealmaking slower than it was in 2021, many startups are scrambling, trimming what is often their biggest expense: employees.

Data from Carta shows that headcounts have dropped across the board. For instance, seed stage companies have gone from having nearly 7 employees on average to just over 5, while companies that closed Series C rounds in the first half of 2024 did so with workforces that were, on average, 43% smaller than those of last year.

Interestingly, these reductions appear to be driven more by hiring freezes than outright layoffs. The first 4 months of this year saw the lowest number of new hires for those months in the past 4 years. Most striking, January — which is typically a busy month for recruitment — recorded its lowest number of new hires so far this decade.

It seems the startup world is, perhaps out of necessity, embracing the mantra of "doing more with less."