In the business world, there is always the potential for startups to make it big or fail.
2022 was a tough year for startups. Many popular startups thriving in recent years suddenly found themselves struggling to stay afloat. Some even failed outright.
The causes of these failures varied from company to company. In some cases, it was simply mismanagement or poor decision-making. Other times, it was bad luck or unfavorable market conditions. But whatever the cause, the effect was the same: dozens of once-promising startups shuttered their doors for good. Here are four notable failures from 2022:
FTX
The collapse of FTX, a cryptocurrency exchange, has been one of the most high-profile failures in the crypto industry. Launched in early 2019 by Sam Bankman-Fried, the startup was one of the most ambitious projects in the space. It offered various trading products, including derivatives, options, volatility products and leveraged tokens, but it soon faced accusations of fraud and mismanagement.
On November 2, 2022, the exchange came to a head when crypto news media outlet CoinDesk published a contentious article exposing crucial information about Bankman-Fried’s trading company Alameda Research’s balance sheet. According to the article, Alameda has a total of US$14.6 billion in assets, including US$3.66 billion worth of unlocked FTT (FTX’s exchange token) and US$2.16 billion worth of FTT collateral. With around one-third of Alameda’s portfolio made up of FTT, people in the crypto space were taken aback. Several queries concerning Bankman-Fried’s companies’ undisclosed leverage and financial well-being caused commotion in the cryptocurrency sector.
On November 6, Sam Bankman-Fried and Alameda Research’s CEO Caroline Ellison clarified that the rumors were false. However, on the same day, Changpeng Zhao (known as CZ), the CEO of Binance, a rival exchange that had invested in FTX, declared on social media his intention to sell Binance’s FTT holdings, leading to a sharp decrease in FTT’s price. Following this, customers began panic-withdrawing funds from FTX, leading to a liquidity crunch at the crypto exchange.
On November 11, FTX filed for Chapter 11 bankruptcy protection, along with around 130 other affiliated companies as part of the proceedings. On the same day, the company announced the resignation of its CEO Sam Bankman-Fried, and former Enron lawyer John J. Ray III replaced him.
Bankman-Fried admitted that the cryptocurrency exchange had become too “overconfident” and “careless” when it expanded to a massive US$32 billion giant. The fall of FTX is a cautionary tale for other startups in the space. It highlights the risks inherent in this young industry and the importance of proper management and governance.
Reali
Reali, a California-based real estate tech startup, announced in August 2022 that it was shutting down and would be laying off most of its workforce. The move resulted from challenging economic and real estate conditions and an unfavorable capital-raising environment.
The real estate industry has been hit hard by the recent slowdown in the housing sector after a surge in home purchases due to inflation and rising interest rates for mortgages. The lack of demand has had a direct impact on startups in the space, as they are unable to sustain their businesses.
Founded in 2015, Reali was known for providing homeowners with “buy before you sell” and “cash offer” programs. The startup has raised US$290 million in debt and equity funding since its inception.
The company’s co-founder and chairman of the board, Amit Haller, said in a news release announcing the closure, “We believed deeply in benefiting the consumer foremost in every transaction. The six years Reali spent evolving the prop tech market in California helped elevate and transform the industry.” He did not mention if the laid-off employees would receive a severance package.
The shutdown of Reali is a reminder that even the most promising startups can fail. Despite having raised US$100 million in 2021, the startup could not make a profit and had to close its doors.
ShopX
The shutdown of ShopX, which was once valued at over US$100 million, has been a hot topic of conversation lately. The Bengaluru-based ecommerce startup ceased its operation and filed for insolvency and bankruptcy in August 2022. The regulatory filings also detail that ShopX has taken loans from its Singapore-based investor Fung Investment and cannot meet its payment obligations (interest on loans) as it currently has insufficient funds.
Founded by Amit Sharma and Apoorva Jois in 2015, ShopX started as an online business-to-business commerce company. They then became an ecommerce enablement business model provider in 2021.
Fast
Fast, a U.S.-based startup that provided online checkout products, announced in April 2022 that it would be officially closing its doors. The startup reported small growth and high cash expenditures in 2021 with fewer fundraising options, which made the future uncertain. The startup announced the impending closure through a tweet, saying, “Sometimes trailblazers don’t make it all the way to the mountaintop.”
Founded by Domm Holland, Allison Barr Allen and Joshua Abulafia, Fast entered the increasingly crowded one-click checkout startup scene (i.e. the one-click checkout feature was already available on Amazon and Shopify) in 2019. It promised to provide shoppers with a faster and more convenient checkout process than anything else on the market. A Fast user could make payments with any participating retailers upon creating their payment profile with just one touch. Over the years, Fast became a popular checkout option for many online retailers. However, the startup struggled to survive and ultimately shut down.
While it is always discouraging to see a promising startup fail, it is important to remember that not every company can succeed. The startups on this list all met their end for different reasons, but each one serves as a reminder that even the most well-intentioned businesses can sometimes come up short.
Also read:
- Major Tech Layoffs of 2022
- 4 Weirdest Failed Startups That You Should Know About
- 7 Expensive And Unexpected Startup Failures In 2020
- Tech Downturn: Why Silicon Valley Is Dealing with a Slew of Layoffs
Header image courtesy of Pexels
