It’s easy to start a startup. But it’s far more difficult to shut one down.
An estimated 90% of all startups fail, so there is no question that the problem is a widespread one. Yet the process to wind down a company is largely manual and bureaucratic.
That’s something three-time founder Dori Yona realized when building his last company and was tasked by a board member to create a “shutdown analysis.” But to even get to that realization took a while.
“I went from one lawyer to another, accountant to accountant, the internet — it’s almost a taboo subject despite the fact that 93% of startups that raise will shut down,” he told TechCrunch.
So in April, after leaving his job as GM of Growth at Navan, he teamed up with Nimrod Ram (CTO) to start SimpleClosure, a seven-person company building a platform to help automate the shut-down process. Today, he said, the process to close a company using legacy providers can cost upwards of $75,000 and take nearly one year.
“We’re getting this done in weeks for a fraction of the cost,” he said, noting that SimpleClosure’s pricing model depends on a number of factors, including size of company and stage of wind-down.
Raising money without a pitch deck
The pair raised $1.5 million in pre-seed funding — interestingly, in 24 hours and without a pitch deck.
“I was not looking to raise money originally, but after attending Fintech Meetup on a free ticket, I pitched the platform to a few investors there — saw the excitement — and had their buy-in the next day,” said Yona, who sold a startup called Earny in 2021 in a private transaction after raising $14 million in funding. “The fact that we were able to raise so quickly really underscored the market need for a solution like this.”
Vera Equity and Cambrian Ventures co-led the round, which included participation from a slew of executives from startups such as Brex, Plaid, Gusto and Nvidia, among others. The company plans to use the majority of the funds for product and engineering development.
“SimpleClosure was built and designed with an eye toward profitability and has been generating revenue since day one, which gives us the ability to grow at a fast clip rather than being fully dependent on VC money,” Yona said. “To give a sense of the size of the market, in the United States, between 700,000 to 1 million companies fail or close each year.”
The company says it leverages fintech, legal tech and artificial intelligence in order to automate the shutdown process in three stages: onboarding, dissolution & wind-up and actual shutdown.
First, SimpleClosure collects information to understand the challenges and intricacies specific to a company. It then initiates procedures and works on executing the specific dissolution and closure plan. That includes resolving any remaining obligations and tying up loose ends with customers, vendors, state agencies and employees. During that stage, the company prepares the necessary legal paperwork and works to secure required consents from stakeholders. Lastly, it handles the company’s intellectual property, settles any remaining financial obligations and handles fund distributions to investors. It also offers advice on post-closure activities, such as the retention and safe-keeping of vital company records.
Yona said the startup is leveraging and building AI technology specifically to help automate manual, tedious processes such as data extraction and summarization of legal documents related to company dissolution.
‘A big business opportunity’
SimpleClosure is currently working with startups and corporations and LLCs but plans to expand to other segments as it grows.
“Since June we’ve seen exponential growth in paying customers and interest from founders — everything thus far has been word of mouth organic customers,” Yona said.
Elie Toubiana, founder of Carbon Payments, which shuttered earlier this year, is one of those customers. He said SimpleClosure made the shutdown process a manageable one, and handled complexities “with professionalism and transparency.”
Cambrian Ventures founder and general partner Rex Salisbury told TechCrunch that he invested in SimpleClosure because he realized, simply, it was a “problem that needs solving.”
“It’s also a big business opportunity,” he said.
Salisbury acknowledged that when he’s had to shut down a business in the past, he found the process to be “surprisingly hard, even for very simple ones.”
“For larger or highly regulated companies that have licenses or operate in many states, the complexity scales quickly as does the risk to the founder if they don’t shut down correctly,” he said. “You might think shutting down a business is a one-time event, but there is residual risk exposure that needs insurance coverage and IP and assets that need to be managed. SimpleClosure has taken a tech-first approach to something that has been a manual, error-prone process.”
Want more fintech news in your inbox? Sign up for The Interchange here.
Comment