These Four Tech Startups Went Bankrupt in the Past Six Months – Don’t Make the Same Mistakes They Did

By TRUiC Team | Friday, 22 December 2023 | Feature

It’s no secret that things are harder for startups than they used to be. Virtually unlimited floods of venture capital have succumbed to high interest rates and other economic factors, rendering the halcyon days of just a few years ago a distant memory. 

How bad has it gotten? According to The New York Times, about 3,200 private VC-backed US companies have filed for bankruptcy just this year. And this is probably an underestimate, given that many companies that go out of business don’t exactly shout it from the rooftops.

Below are four companies – one famous, others less so – that didn’t make it. Read their stories so you don’t make the same mistakes with your startup. Then check out our top survival strategies for startups in this newly challenging business climate.

WeWork

WeWork, one of the biggest flexible space providers and once the country’s most valuable startup with a value of $47 billion, famously failed despite its charismatic CEO and innovative business model that was supposed to disrupt the office space industry.

WeWork was founded in 2010 with a unique approach to office space:  It rented large spaces for long periods of time and sublet those spaces, or parts of them, to other companies. The idea was to provide flexible, short-term leases to companies that didn’t want to own their own offices.

At first, everything seemed to be going to plan. WeWork expanded rapidly and added coworking spaces all over the US. However, that expansion was fueled by piles of debt, as the company soon was losing epic amounts of money. Problems included leases that got ever more expensive and myriad clients that canceled lease agreements in the wake of the work-from-home trend fueled by the COVID-19 pandemic.

Adam Neumann, WeWork’s founder, ignored repeated warnings that WeWork couldn’t go on spending lavishly with steep losses forever. He was ousted in 2019. 

WeWork’s first attempt to launch an IPO in 2019 failed when the proposed share sale was much less successful than predicted, with investors skeptical about the company’s business model and critical of Neumann’s management style. The second IPO succeeded after a fashion, but only through a merger with a black-check acquisition company, and with a valuation pegged around $10 million – less than one-fourth of its previous value.

WeWork tried to right the ship by, among other things, amending long-term lease obligations that reached a staggering $13.3 billion earlier this year. It was too little, too late, and Neumann’s brainchild filed for bankruptcy in November.

"The company was the product of a boom, and during booms, investors ignore the flashing warning lights," Steve Clayton, head of equity funds at Hargreaves Lansdown, told Reuters. “'Charismatic CEO' is a term that should strike fear into any investor's heart. Innovative financial metrics are rarely truly innovative, instead being a way of disguising a lack of cash profits, and WeWork played that game for all it was worth.”

Olive AI

Olive AI was once a high-flying healthcare startup valued at more than $4 billion. Last month, it announced that it would shut down, saying it would sell its remaining assets – revenue cycle and automation tools, which it said are the core of its business – to Waystar and Humata.

According to Healthcare Dive, Olive AI exemplified the success of digital healthcare startups, which raised more than $29 billion in 2021 alone. However, funding in that industry has since plummeted, and few companies in the space are attempting to go public.

Olive AI, which launched in 2012 and grew rapidly for several years, laid off some 450 employees in July 2022. This was due both to the economic downturn and to “missteps” that required “difficult but necessary organizational shifts,” a company spokesperson told Fierce Health.

"Olive’s values of 'choose vision over status quo' and 'act with urgency' drove us to make significant investments across the most pressing parts of healthcare, scale our teams and move quickly to bring solutions to the market," CEO Sean Lane said in a message to employees posted on Olive's website. "The realities of today’s economy are forcing the company to rethink this approach."

According to Lane, these missteps included “fast-paced growth and lack of focus,” which “strained our product and engineering resources and prevented us from executing quickly on key initiatives.” 

For example, the company tried expanding population health management, prior authorization, surgery analytics, and other areas of healthcare before it was ready to compete in those spaces. Not surprisingly, it didn’t deliver on its loft promises.

Industry analysts also say that, like a lot of startups over the past several years, Olive AI relied too heavily on easy VC money when times were good; the company raised some $852 million, according to the New York Times.

These mistakes and growing economic headwinds forced Olive AI to begin selling off some of its business – a downward spiral from which it never recovered. 

Convoy

This digital freight broker, backed by none other than Jeff Bezos, raised $260 million at a $3.8 billion valuation about a year and a half ago. In October 2023, it announced it was shutting down due to a “massive freight recession” and “contraction in the capital markets.”

The Seattle-based company was founded to upend the freight brokerage industry with a tech-centric approach to trucking, and CNBC named it a CNBC Disruptor 50 company five times. 

Among other advantages Convoy enjoyed were the COVID-19 pandemic’s supply chain snarls and supply/demand mismatches, which caused logistics prices to skyrocket. However, those prices have since declined. That meant less demand for the company’s on-demand technology, and it had to conduct several layoffs in the past year.

Convoy managed to secure new funding from investors in 2022, as well as a new line of credit, but it wasn’t enough to save the company in light of its challenges. These included, according to a memo from CEO Dan Lewis to employees, “an “unprecedented freight market collapse” and “dramatic monetary tightening [that] dramatically dampened investment appetite and shrunk flows into unprofitable late stage private companies. This combination ultimately crushed our progress at the same time that it was crushing our logical strategic acquirer — it was the perfect storm.”

Veev

Reaching unicorn status is no guarantee of a startup’s success, as prefab home builder Veev knows all too well. The Israel-based company, which at one point had more than 400 employees, had raised about $600 million and achieved unicorn status in March 2022.

The company offered a “proprietary panelized approach to produce fully-cladded walls, complete with mechanical, electrical, and plumbing (MEP) solutions,” according to Calcalist. Veev claimed a team of five people could build one of its homes in four weeks – an astonishingly fast turnaround. Its homes also purportedly were more energy efficient than typical prefab buildings.

"Veev was in the process of raising capital, which was canceled at the last minute. In light of the current market situation in Israel and globally, it was not possible to secure additional funding," the company wrote in a statement. "Therefore, the current entity of the company will be closed in the coming days and transferred to an assignee who will be in charge of the assets and their sale in the US. In the meantime, until a buyer is found for the assets, the company's operations will continue. At this stage, the company's employees in Israel will continue to work."

According to the statement, Veev will continue to operate in Israel, and it could still be acquired. “The current entity of the company will be closed in the coming days and transferred to an assignee, who will be in charge of the assets and their sale in the US. In the meantime, until a buyer is found for the assets, the company’s operations will continue. At this stage, the company’s employees in Israel will continue to work.”

Survival Strategies for Startups

Despite the current economic headwinds and other perils facing all startups – as exemplified by the four companies above – your company can still thrive. These survival strategies will help.

Don’t Expand Too Fast – Especially Using Debt

This was one of WeWork’s primary mistakes, and it ended up leading directly to bankruptcy. Olive also expanded faster than was prudent and in an unfocused way that put too high of a strain on its resources.

Stay Relevant

Don’t stick with your current service or product if market forces shift. Accept feedback from customers, and if needed, change your strategy to remain relevant. 

Don’t Compromise on Customer Service

Word of mouth is a critical marketing avenue for startups. Keep your customers happy so they recommend your company to others.

Hire Wisely

This includes both the personnel you need today and those you think you will need as you expand. And be sure to only hire those who are very well matched to particular roles.

Stop Doing What Isn’t Working

This is another mistake WeWork made – thinking that it could go on losing money indefinitely. Its business model was obviously faulty, and yet it kept pursuing the same course.

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