Could Portugal be affected by looming tech startups bubble?
The number of startups that failed increased by more than 60% last year in the United States, with founders running out of capital raised in the years of the 2021-2022 tech boom, putting millions of jobs in venture-backed companies at risk and threatening contagion for the wider economy.
According to the Financial Times (FT), which cites data from Carta, which provides services to private companies, the closure of startups has skyrocketed, despite billions of dollars of venture capital invested in startups piggy-backing on the current frenzy of artificial intelligence.
The collapses are part of an adjustment triggered by the rise in interest rates in 2022. Venture capital investment in early-stage companies has plummeted, while debt has declined in the wake of the collapse of Silicon Valley Bank (SVB), leaving many startups stranded.
In the boom years, venture capital funds would encourage founders to make bigger investments by inflating valuations, Healy Jones, vice president of Kruze Consulting, which provides accounting services to hundreds of venture-backed startups, told the FT. But now, he adds, they face the “hangover” from those times.
The jump in bankruptcies is due to the fact that “an unusually high number of companies raised an unusually high amount of money during 2021-2022,” Morgan Stanley analysts pointed out in a recent note to clients.
Venture-backed companies employ 4 million people in the United States, according to the investment bank, creating “risks of contagion to the rest of the economy” if the rise in bankruptcies does not decrease.
Peter Walker, responsible for the Charter, indicated to the same newspaper that there has been a “huge drop” in the number of companies able to raise money again two years after their last round of funding.
According to the same entity, 254 of its venture capital-backed clients went bankrupt in the first quarter of the year, with the bankruptcy rate today being more than seven times higher than when Carta began tracking bankruptcies in 2019.
