The article attributes this trend to rising interest rates, which have made the cost of capital more expensive and less risky investments more attractive. This has led to a decline in investment in startups, marking an end to the golden VC years fueled by low interest rates and the growth of the mobile internet. However, AI startups seem to be bucking the trend, with more than 25% of all dollars invested in US startups this year going to AI companies.
Key takeaways:
- Many high-profile startups, including SmileDirectClub, WeWork, Hopin, and Bird, have collapsed recently, with over 3,200 private venture-backed US startups going out of business this year.
- The Federal Reserve's increase in interest rates to a 22-year high has made capital more expensive, making less risky investments more attractive and leading to a lack of investors willing to support struggling startups.
- The boom in startup investment, which saw funding increase by 8x between 2012 and 2022 to $344 billion, has come to an abrupt end due to these changing conditions.
- Despite the challenging environment, AI startups have seen significant investment, with over 25% of all dollars invested in US startups this year going to AI companies and funding more than doubling from 2022 to 2023.