Over the past two years, parts of San Francisco’s SoMa district have experienced a particular kind of silence. Once bustling with standing desks and cold brew on tap, offices are now empty or have been subtly sublet. Sometime in late 2023, once-buzzy startups stopped posting on Instagram. If you look up the founders on LinkedIn, they list themselves as “consultant” or “advisor”—professional terms that are courteous for someone whose business is no longer in operation. No press release was sent. No bell was rung. One by one, the businesses simply went out of business in the manner that happens when there is no money left to support them.
This is a close-up view of the venture capital winter. No single Black Monday moment, no congressional hearings with executives on trial, no spectacular crash. As thousands of startups that raised capital during one of the most remarkable funding booms in history ran out of runway and quietly folded, there was only a slow, spreading silence. When you discover the numbers, they are shocking. According to data from Carta, between 50 and 70 percent of VC-backed startups that had raised more than $1 million failed in 2023. The first quarter of 2024 saw more startup closures than any other quarter of the prior year. These are numbers that would dominate the news cycle for months in a different industry.
| Field | Details |
|---|---|
| Era Under Review | 2017–2024 — from peak VC abundance to prolonged startup recession |
| Peak Funding Year | 2021: $620–630 billion in global VC investment — more than double the prior year |
| Unicorn Births (2021) | Over 150 unicorns created every quarter; 25 reached $1B+ valuation between Series A and C |
| Startup Failure Rate | Between 50% and 70% of VC-backed startups that raised over $1M went out of business in 2023 |
| Primary Cause | Rapid rise in interest rates — catching Silicon Valley Bank, VCs, and founders off guard simultaneously |
| Key Casualty | Silicon Valley Bank collapse — a direct consequence of the rate environment shift |
| Job Losses (2024) | Over 60,000 tech job cuts across 254 companies by mid-2024, per Layoffs.fyi |
| Current VC Problem | “Dry powder” buildup — older SaaS-focused funds sitting on unspent capital with outdated strategies |
| Historical Parallel | Startup recession described as comparable in severity to the 2008 financial crisis |
| Silver Lining | Companies born in downturns historically outperform — AirBnB, Uber, Netflix, and Microsoft all launched during recessions |
You have to go back to 2021, a year so unusual that PitchBook analysts reportedly stopped referring to it as a record year because the term didn’t adequately describe the situation, in order to comprehend how this occurred. Between 620 and 630 billion dollars were invested globally in venture capital that year, which was more than twice as much as the previous year. Before 2021, the startup ecosystem produced about 150 unicorns, or businesses worth at least $1 billion, every year. Twenty-five companies reached unicorn status between Series A and C funding rounds alone in 2021, with more than that being minted every quarter. There was cash all over the place. Investors competed fiercely, even feverishly, to close deals. In the words of one CB Insights analyst, there was “a little bit of FOMO.”
In hindsight, it’s clear that cheap money was what drove it. Capital had virtually nowhere productive to go due to years of interest rates close to zero, so it moved into private markets in quest of profits. Some observers referred to these investors as “tourist investors” because they were writing checks despite their lack of technological expertise because the alternative was to sit on cash that made no money. There was little reason to doubt the reasoning of founders who had worked in this setting their entire careers, raising round after round under the presumption that capital would always be available and valuations would always rise. For a while, it was incredibly effective.
Interest rates then increased. Quickly. The Federal Reserve responded to inflation more quickly than most Silicon Valley players had expected, and the effects spread swiftly. Expectations in private markets were nearly immediately reset as public market valuations plummeted. Investors who had been racing to close deals abruptly slowed down, tightening requirements, lengthening deal timelines, and requesting proof of profitability that had never been taken seriously before. The collapse of Silicon Valley Bank in early 2023, which had based its entire business strategy on catering to this particular ecosystem, is the most obvious example of how drastically the environment had changed. Startups were left with no options if they hadn’t moved quickly enough to reduce headcount and tighten margins. They closed after burning through what little money they had left.
The dry powder that is sitting idle in older venture funds is a secondary issue that hasn’t gotten enough attention. VC funds raised between 2019 and 2022, many of which concentrated on software and SaaS companies, are sitting on significant unspent capital with investment strategies created for a world that no longer exists. The public market’s appetite for software companies has been uneven at best, and AI has changed the software landscape in ways that make traditional SaaS plays less compelling. These funds are stuck because they are too devoted to their current mandates to quickly change course and too conscious of the shifting landscape to make the same investments. Early in 2026, the WSJ reported that these older funds were already in an uncomfortable situation, which was made worse by the software selloff that was shaking public markets.
Here, it’s important to be open about the uncertainty. On the other side of this contraction, nobody knows exactly when the cycle will turn or what the next iteration of startup culture will look like. The story’s optimistic interpretation, which is not irrational, alludes to the past. The 2008 financial crisis coincided with the launch of AirBnB. Uber, WhatsApp, and an early version of Slack all followed suit. Companies that were born during a recession typically develop with a different kind of discipline because they have never experienced easy money.
The entrepreneurs launching businesses in 2024 and 2025 are aware from the outset that profitability is a must. That is not insignificant. It’s possible that the next generation of truly resilient tech firms is being created now, with leaner teams and smaller offices, out of necessity rather than abundance. As the startup ecosystem shrinks so dramatically, there’s a sense that what emerges may be more fascinating than what entered.
