BENGALURU: In just one week, two start-ups -- quick fashion delivery platform Blip and AI start-up CodeParrot -- have shut down citing various reasons including funding crunch. Though it is not easy to raise funds, especially after securing seed money, what bothers the start-up ecosystem is excessive cash burn and the pressure to grow fast.
TNIE spoke to many venture capitalists and investors who said lack of clear planning and in some cases even poor legal and structural hygiene are some of the reasons for start-ups shutting operations.
According to data sourced from market intelligence firm Tracxn, 65,906 companies were shut down in India from January 2023 till date while a total of 7,484 start-ups were shut down from July 1, 2024 to July 18, 2025 alone. Start-ups such as Koo and Zerodha's Nithin Kamath-backed Stoa School have shut down in recent times.
"Start-up shutdowns are not unusual; they are part of how a young ecosystem matures. What we’re seeing now is a period of correction, brought on by a mix of internal and external challenges," said Roma Priya, founder of Burgeon Law.
One major reason is the lack of product–market fit. Many start-ups go to market without fully testing whether their product solves a real and scalable problem. Founders also often face co-founder conflicts or team misalignment early on, which can slow momentum. Another common issue is limited access to funding, especially now that investors are being more selective.
In addition to these, several start-ups face difficulties due to poor legal and structural hygiene, for example, unclear company structures, weak documentation, or non-compliance with regulatory norms, Priya added.
Vedant Agarwala, co-founder of CodeParrot, said in a LinkedIn post that they hired and painfully had to let go of both the engineers. "We burned through the $500k we’d raised — and when we hit $1,500 MRR (monthly recurring revenue) with our final pivot (Figma-to-code using LLMs), we couldn’t break through. Instead of running more experiments with a dwindling runway, we decided it was time to shut shop," he said.
The co-founder also said that start-ups are brutally hard — and pivot hell is the worst part by far.
Validate the product
Gaurav Goel, Founder & Director at Fynocrat Technologies, said that to reduce such shutdowns, first, it is important to validate the product. Founders should talk to users, take feedback, and check if their product actually solves a problem. Second, going slow is better than going fast and shutting down. One step at a time is the way to go. Growth should come naturally, not forcefully.
He also stressed that founders should build something they really understand. "If you believe in the product and know it well, you are more likely to make the right choices. Also, keeping an eye on the basics, like how much money you spend and how much you earn from each customer, can make all the difference," he added.
Anirudh A. Damani, Managing Partner, Artha Venture Fund, points out that an analysis of over 10,000 investment rounds since January 2015 indicates a dramatic fluctuation in graduation rates (the transition from Seed to Series A funding).
"Historically, around 1 in 15 start-ups raised a Series A within 18 months, and 1 in 12 within 24 months. However, at the liquidity peak, this rate artificially improved, leading founders to overestimate the ease of securing continued financing. Now, as the market has adjusted, funding conditions are far more stringent," he said.
Only 1 out of 50 start-ups secures Series A funding within 18 months, and 1 out of 27 within 24 months. Capital-intensive ventures, such as Blip, face unique challenges due to their substantial upfront infrastructure costs, complex regulatory requirements (including GST compliance and licensing), operational complexities, narrow margins, and intense competition, he further said.
What measures should founders and investors take? Mukul Goyal, co-founder of Stratefix Consulting, said for future resilience, founders should build capital-light wedges (community, IP, service revenue) before scaling assets; insist on quarterly scenario-planning, what if funding dries up for 12 months? Institutionalise cash-flow discipline via independent boards.
“Both founders and investors must accept that building sustainable Rs 50-100 crore businesses is more valuable than chasing unicorn valuations,” he added.