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Dealmaker: Startup Deadpool

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I first met Peter Johnston, the founder of consumer social website Polywork, in 2022 when he had just raised $28 million from former GitHub CEO Nat Friedman and other investors. Johnston was eager to tell me how Polywork would connect people with different professional opportunities, such as a coder who wanted to make angel investments or a designer who wanted to speak at events.  This optimism about building a massive networking platform had faded by the time Johnston this week announced the seven-person company would shut down and return approximately $23 million of the $44 million it raised from investors, which included Caffeinated Capital and Andreessen Horowitz. In an interview, Johnston said the New York–based startup struggled to attract and retain enough customers after finding some initial success. 
Jan 2, 2025

Dealmaker


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I first met Peter Johnston, the founder of consumer social website Polywork, in 2022 when he had just raised $28 million from former GitHub CEO Nat Friedman and other investors. Johnston was eager to tell me how Polywork would connect people with different professional opportunities, such as a coder who wanted to make angel investments or a designer who wanted to speak at events. 

This optimism about building a massive networking platform had faded by the time Johnston this week announced the seven-person company would shut down and return approximately $23 million of the $44 million it raised from investors, which included Caffeinated Capital and Andreessen Horowitz. In an interview, Johnston said the New York–based startup struggled to attract and retain enough customers after finding some initial success. 

Consumer social is "a hard class to invest in: You're not making money from day one, you have to not just get to hundreds of millions of users, you have to sustain it," he said. Those challenges trumped what Polywork had going for it—namely, funding that would have sustained the startup for another 16 years, Johnston estimates.

This realization is one other startup founders have come to over the last two years, in particular ones focused on creators and fintech, which in many cases found it easier to raise money than to find paying customers. 

Several, like cybersecurity unicorn Lacework, have found acquirers. Others have also decided to call it quits—including during the holidays. Today, for example, my colleagues reported about the abrupt shutdown of Level, a benefits provider startup that raised millions from Lightspeed Venture Partners, Khosla Ventures and others. The company closed after an attempt to sell the business fell through, CEO Paul Aaron told customers in an email.

This news came after venture capital–backed accounting startup Bench told staff and customers it was shutting down after its bank called in venture debt it took out in 2021 during an equity fundraise, I reported Monday. Bench came back to life after Employer.com—the new name of a company that's been snapping up HR startups—reached a fire-sale deal. Investors don't stand to get much, if anything, from the takeover. 

In fact, at least 966 companies tracked by Carta, which manages VC firms' investments, shut down or went bankrupt in 2024, up 26% from the prior year. The data represents U.S. startups that are Carta customers, including both startups that have received funding from VC firms and those that haven't yet raised funding. 

The Polywork, Level and Bench outcomes show companies and their investors are still working through the aftermath of the 2020–22 bonanza, which included record equity funding and plentiful venture debt, or loans tied to startups' ability to raise capital rather than traditional underwriting metrics like a business's cash flow. 

Investors haven't wanted to reinvest in many startups at pandemic-era prices, prompting recapitalizations that reduce the value of shares held by some investors—and can wipe out employees' holdings. 

Johnston said he wasn't interested in pursuing that path or trying to reinvent Polywork. "You have to just think, objectively, is it worth another cycle of experimenting and work?" he asked.

But he hasn't given up his startup dreams altogether. The entrepreneur moved to San Francisco late last year and is now starting a new company, Profile.com, which aims to use artificial intelligence to build more effective recruitment tools. 

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Venture capital is at a crossroads. Reporters Cory Weinberg and Natasha Mascarenhas tell you what's coming next, who's winning—and who's losing—in the high-stakes world of startup investing.

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