SANTA MONICA, Calif. — Startup shutdowns in 2025 reflect a maturing venture market rather than a collapse, with companies closing at later stages, after raising more capital, and following longer operating lifecycles, according to a new industry report released by SimpleClosure.
The company’s 2025 State of Startup Shutdowns report, based on an analysis of hundreds of venture-backed wind-downs, shows that the correction triggered after the zero-interest-rate era has moved beyond early-stage experimentation and is now affecting more developed business models. Series A shutdowns rose to roughly 14 percent of all closures, up from about 6 percent a year earlier, representing a 2.5-fold increase.
Companies shutting down are older and better funded than in prior cycles, with many operating for seven to 10 years before winding down. These firms largely trace their origins to earlier fintech, insurtech, and marketplace waves that predated the recent surge in artificial intelligence investment.
The report also points to the first significant wave of AI company shutdowns. AI-related startups accounted for nearly 16 percent of closures, making the sector one of the largest contributors to shutdown activity. According to the analysis, application-layer AI tools and so-called “wrapper” companies built quickly on commoditized models without durable competitive advantages are facing the most pressure. Infrastructure and developer-focused AI companies failed less often, but when they did, they had typically raised roughly twice as much capital.
“The 2021–2022 vintage is working through its filter moment,” said Dori Yona, chief executive officer and co-founder of SimpleClosure. “Founders don’t shut down because they’re done building. They shut down to clear the path for what comes next. The founders winding down these companies are often the same ones who will found the next generation of startups, with clearer differentiation, tighter burn, and a more realistic view of where value accrues.”
Geographically, the shutdowns are concentrated in regions that benefited most from the venture boom of the low-rate era. California and New York account for the largest share of closures, while states such as Pennsylvania and Colorado are seeing sharp increases as startups founded during the 2020–2021 period encounter funding constraints.
Industry-wide normalization is also underway. While AI remains a prominent category, its share of shutdowns declined modestly from 17.7 percent to 15.9 percent as other sectors began to face similar pressures. Business-to-business software-as-a-service companies accounted for a growing share of closures, rising from 5.2 percent to 7.7 percent. Capital-intensive industries, including biotech, healthcare, and climate-related ventures, also showed increased shutdown activity as earlier enthusiasm meets a more cautious fundraising environment.
The report concludes that the AI sector is entering a selection phase, with the market increasingly favoring companies that demonstrate proprietary data advantages, sustainable unit economics, and deep integration into enterprise workflows, rather than tools built solely on top of widely available models.
