Recent Startup Closures: Lessons from Level and Bench Accounting
The recent shutdown of Level, a benefits startup, marks the second high-profile closure in a short period, following the abrupt pivot of Bench Accounting to new ownership. These events raise important questions about the stability of certain startups and the broader implications for businesses and their clients. In this article, we’ll delve into what happened, why it matters, how such closures can be avoided, and whether we might see more closures in the near future.
What Happened? A Tale of Two Closures
The Collapse of Level
Founded in 2018, Level aimed to revolutionize employee benefits, offering streamlined dental and vision insurance plans. Despite raising $27 million in Series A funding in 2021, Level abruptly shut down operations in January 2025 after failing to secure a buyer. Benefits plans will terminate at the end of January, and no new plans are planned for 2025.
Bench Accounting’s Unexpected Exit
In late December 2024, Bench Accounting announced the closure of its bookkeeping and tax filing platform. Within days, however, Employer.com acquired the company, ensuring service continuity for its 12,000 customers. Unlike Level, Bench managed a smoother transition, sparing its clients significant disruptions.
Why Are Startups Shutting Down?
Several factors appear to contribute to these closures:
- Funding Challenges
- The funding environment has become more restrictive, with investors demanding quicker returns and clearer paths to profitability.
- Level’s inability to secure a buyer highlights the difficulty of sustaining operations amid external pressures.
- Market Saturation
- Competition in the fintech and HR tech spaces has intensified, squeezing margins for smaller players.
- Operational Shortcomings
- Both Level and Bench faced challenges in managing scaling operations efficiently while maintaining client satisfaction.
The Implications for Businesses and Clients
Customer Disruption
For clients relying on these services, abrupt closures mean scrambling for alternatives. In Level’s case, benefits disruptions may lead to employee dissatisfaction, while Bench’s temporary uncertainty risked data security concerns.
Trust in Startups
These closures erode trust in smaller or newer service providers, prompting businesses to favor established companies even if they come at a premium.
Could These Closures Have Been Avoided?
- Diversified Revenue Streams
- Relying heavily on a single offering, such as dental and vision insurance in Level’s case, increases vulnerability.
- Proactive Financial Management
- Strong cash flow management and contingency planning could provide buffers during challenging periods.
- Transparent Communication
- A gradual wind-down process, like Bench’s approach, minimizes client disruptions and preserves goodwill.
Are More Closures on the Horizon?
Warning Signs
High Burn Rates: Startups with excessive spending compared to revenue are at risk.
Overreliance on External Funding: Companies without sustainable revenue streams may struggle as funding tightens.
Industry Trends
With a volatile economic landscape and increased investor scrutiny, startups must adapt quickly or face the possibility of closure.
Conclusion
The closures of Level and Bench Accounting serve as cautionary tales for startups and their clients. While the startup ecosystem thrives on innovation, sustainability must remain a top priority. Businesses relying on startups should regularly assess their service providers’ financial health and contingency plans to mitigate potential disruptions.
By learning from these examples, we can foster a more resilient and trustworthy business environment.
