It’s that time of year. Jack-O-Lanterns adorn front porches. Spirit Halloween stores temporarily fill every vacant building.
While the usual ghouls and ghosts are on schedule for their big night, there’s another fearsome monster lurking around the corner that most people aren’t aware of…
Not literal zombies (at least we hope not) – zombie startups.
With the macroeconomic landscape in serious flux – and no real relief due anytime soon – the business world is being forced to adapt to the new normal.
For startups, many of which have the luxury of charting their path with these complications front of mind, remaining malleable is easier than for others.
However, startups are far from immune from the fallout of our 180-degree economic turn from 2021. In fact, these aforementioned “zombie startups” are in for some real pain – and perhaps worse.
Of course, to fall into the ranks of the “walking dead,” you had to once be alive and well. And these zombie startups aren’t far removed from extremely prosperous times.
As we’ve mentioned a good bit of late, the free-for-all capital landscape of the pandemic helped secure substantial sums of money for early-stage companies. At the time, it appeared to be all systems go, and these startups likely expected their valuations to continue to balloon.
Fast forward to current times, and that expectation has soured.
While these companies are still sitting on hefty sums of capital, and relatively lengthy runways as a result, the prospects for what lies at the end of that runway are particularly specious.
As you’ll recall, the startup gold rush of the past couple years rewarded founders for lofty ideas. However, those same founders now find themselves in a landscape that’s prioritizing profits. As the rug was pulled from underneath them, immense pressure to start turning the corner looms despite their being founded upon long-term visions.
So, without revenues to justify their previous valuations, these companies are sitting ducks. The question becomes – how do you identify these zombie startups?
Well, there are some clues to keep your eyes out for.
One, for example, is staff.
It’s no secret we’re in for some employment turbulence as the Fed looks to tamp down inflation. So, layoffs in and of themselves should not necessarily sound the alarm for a startup’s prospects. In some cases, they’re prudent.
However, that tune changes when layoffs are accompanied by high-level, C-Suite employees similarly heading for the door.
We’ve seen situations like this firsthand among the likes of OpenSea, Noom, and Brex.
So as startups of this ilk continue to see out the length of their rope, it’s up to angel investors to stay out of the path of the “dead ones walking.”
There are going to be some big-time failures among the startups that raised big-time capital throughout the past 24 months.
We’ll make sure to avoid them together.