Seed Stage Slaughter

The Startup Death Watch

lonely monkey The Startup Death Watch

(flickr.com/epsos)

Here at Betabeat, we’re inundated with calls and emails from publicists who work for startups and founders who don’t have publicists. Most of the calls are cold, obviously part of a mass outreach effort, and frequently come from companies Betabeat wouldn’t cover, usually because they’re not based in New York. Often times the calls are invitations to events we aren’t interested in, like a talk about digital media that takes place in the middle of the day. Frequently the emails bear subject lines like, “New Online Trend” or “Tubalr, a new way of surfing YouTube and enjoying music” or “New app helps ‘break the ice’ at holiday gatherings” or “Localscope on sale for 5 days.”

Anyway, we know what TechCrunch’s Erick Schonfeld means when he says “the sheer number of new startups forming and getting funded these days is dizzying.” No doubt TechCrunch gets vastly more pitches from new companies than we do. But the sheer volume of come-ons from new startups in New York and beyond is staggering, and that’s what has Mr. Schonfeld comparing this period in startup history to the Cambrian Explosion, a period of rapid evolution and diversification of life forms that occurred about 530 million years ago.

Many new life forms were created, Mr. Schonfeld writes, but many were naturally selected out. And with seed stage fundings outpacing series A fundings, a swatch of new startups is on notice. Survival of the fittest. “A lot of seed stage startups are going to die,” said Jeff Clavier of SoftTech VC, at the Bloomberg Empowered Entrepreneur conference earlier this month. “An enormous amount were funded over the last two years, and the money is not there now to support them in the next round.”

Of course, there are still plenty of companies having no trouble raising a Series A. But here in New York, we’ve seen companies like ToVieFor struggle to raise funds after blasting out of the gate into TechStars and winning the Stern Business School business plan competition at NYU. Flash sales aggregator MyNines shut down in August; early Facebooker Chris Hughes had to shutter Jumo around the same time after the service floundered, and the myriad group texters are starting to drop out of the race. Dinevore, which never got funded, is mid-pivot, as is Leetto. Meanwhile, the hype continues elsewhere: PublicStuff had an oversubscribed round and investors are still throwing money at Tumblr.

Only time will tell which companies are fit enough to survive. But with the low barriers to entry in Startupland, the losses are fairly minimal–it’s not like the IPO-happy days of the dot-com era when any sign of traction meant entrepreneurs started counting down the minutes to a public offering. We’re talking about angels and VCs losing money in the low five digits, for the most part (although Lee Hnetinka lost $100,000 on his app), which is why the mania persists: not much to lose, potentially the next Facebook to gain.

Follow Adrianne Jeffries on Twitter or via RSS. ajeffries@observer.com