Shutting startups down: When to pull the plug?

Founders and investors face hard choices when a funding slowdown means they can’t keep the lights on. When breakthrough isn’t in sight, is it better to pull the plug?

Benjamin Cher

Published Fri, Jul 7, 2023 · 03:30 PM

Tales of breakthrough echo through the startup ecosystem, making any decision to shutter a tough one for founders to make. ILLUSTRATION: SIMON ANG
Tessa Therapeutics ceased operations after failing to raise more funding as biotech valuations plunged and investors turned away. PHOTO: TESSA THERAPEUTICS
Tessa Therapeutics’ level six premises, housing part of the manufacturing facility, at its Depot Road building on Jun 30. PHOTO: CLAUDIA CHONG
In the case of JiPay, it was not a singular issue but a combination of factors, that led founder Dayana Yermolayeva to call it a day. PHOTO: DAYANA YERMOLAYEVA/LINKEDIN
Jeffrey Seah, managing partner of MSW Ventures, notes that accepting failure is a big problem in Asian culture, with many struggling with failure due to losing “face”. PHOTO: MSW VENTURES
Karl Mak, co-founder of now-defunct Televate, says that there was much fear and worry over having to tell investors that their investment did not pan out. PHOTO: HEPMIL MEDIA

IT IS a sorry fact of the startup life that 90 per cent of startups will fail, with 10 per cent dropping out in the first year. Failure to launch is not in the least uncommon. But in a hostile macroeconomic climate with the massive funding boom of the last five years burning out, fortune may not favour the bold.

High-profile startups shuttering are making headlines, with biotech startup Tessa Therapeutics the latest to close shop. Failing to raise the next round of funding, the board decided to pull the plug on the venture.

In a letter to shareholders, Tessa said: “We have witnessed an unprecedented value depreciation in public markets for biopharma as a sector. High interest rates and a sharp decrease in biotech valuations have reduced the risk appetite of investors. Investors now expect far more mature data than what we currently have.”

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