After tapping a flood of venture capital in recent years, a growing number of startups are getting caught in purgatory.
These companies, which include consumer and e-commerce businesses, have just enough capital to keep going, for now. But they aren’t growing fast enough to raise more financing or secure a big “exit” through a sale or by going public. In Silicon Valley, they are often called “zombies.”
Stuck in neutral, these “zombies” are racing through their options, turning to restructuring firms to fix cash-management issues, using new services to pursue quick sales or teaming up with other young companies in trouble.
Referly, for example, a San Francisco startup that helps consumers make money by referring products, was growing but not making enough money for its users, says co-founder Danielle Morrill. So recently Referly decided to scrap its business model and acquire another “zombie” startup, LaunchGram, a notification service that keeps users up to date on product releases.
“I didn’t feel like we were ready to throw in the towel,” says Ms. Morrill, who declined to comment on specific plans for her company.
Data about zombie startups isn’t widely available. But venture capitalists say the numbers of such firms are growing and some investors are targeting them with new services.
This month, venture capitalist Jacob Mullins started Exitround Inc., which connects troubled startups with buyers. He says the San Francisco firm has received hundreds of applications from startups seeking …