The increasingly difficult environment is taking its toll on the Atlantic Canadian startup community, as a record number of companies in the Entrevestor Databank have failed in 2023.
As we begin to examine the startups in our databank for this calendar year, we’ve already identified 117 companies that we’re removing from the list because they’re no longer in business. It’s a preliminary tally, but if it holds it would be 15 higher than the previous record of 102 in 2020, when COVID-19 ravaged the global economy. In 2022, we identified 63 failures, about half the number of this year.
The Entrevestor Databank is a collection of data on all the “startups” in the region, which we’ve been collecting for 10 years. Our definition of “startup” is an innovation-driven company based in the region, and all must be commercializing innovation to make a product for the global marketplace. The age of the company is not a factor, even though the word “startup” denotes a young venture.
At the end of 2022, the databank comprised 807 companies, so the failures in 2023 amounted to 14.5 percent of the previous year’s total. It’s not quite as bad as 2020, when 14.6 percent of the previous year’s startups went under.
The companies that stopped business this year included some major players, including such publicly listed entities as IMV and Swarmio. According to LinkedIn data, more than 150 people were working at IMV at one time. There were also companies that had tapped investors directly, such as Covina Biomedical of Halifax.
They also included lots of smaller players, as almost half were under two years old. We had designated 46 of the 2023 failures as “zombies” in 2022, meaning they were companies that had made no public statements in at least two years.
In total, the companies in the list of failures employed about 400 people at the end of 2022. Many of these would be founders of early-stage companies trying to make a product and get to market, and many were employees of what they thought were growing companies that had a chance. Given the tight labour markets, it’s a fair bet that most of them have found other work, though the suffering caused by the failures can’t be overlooked.
So what happened this year to make it a record year for failures?
One thing we saw was young companies simply not getting traction so the founders moved on. We see that every year. There are always new entries into the accelerators, the Pitch & Pick entrants at Genesis in St. John’s, the university students who go to work on a food-delivery startup or dashboard for rental properties. Every year we add a bunch of these to the databank. Every year we take a few out. They’re part of the community.
But there was something more this year. In 2020, almost two-thirds of the failure companies were less than two years old, but this year the proportion was about half. So there were more older companies this year that hit the wall. They included, for example, an entry in the first BioInnovation Challenge in 2012 and a former winner of Innovacorp’s I3 Competition.
More than anything, the high number of closures probably reflects the prevalence of mid-term startups that weren’t growing fast enough to get fresh investment, or even more non-dilutive financing. There’s enough opportunity right now to work for someone else that shutting down a struggling startup can be an attractive option.
One final note: these are preliminary numbers, so the totals could increase by the time we publish our 2023 Atlantic Canada Startup Data Report in the spring. They could also decrease, if we find some of the companies weren’t quite as dead as we now think.