Hey — It’s Nico.

Welcome to another Failory edition. This issue takes 5 minutes to read.

These are the 5 most important things:

• Addiction recovery startup Kyros shut down this week — learn why below.

• The founders of Notion, Linear and Figma shared some seed fundraising advice.

• Andrew Chen published a list of startup pivots that don’t work.

• OpenAI is creating a ChatGPT device designed by the former Apple Chief Designer.

• The Chinese startup scene is in free fall according to FT — read what’s going on below.

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This Week In Startups

🔗 Resources

Seed fundraising advice from the founders of Notion, Linear, and Figma (among others).

Andrew Chen’s list of startup pivots that don’t work.

A framework to choose if your new feature should be free or paid.

Some non-obvious early signs of PMF and how to recognize them.

Why marketing must be the number one priority for technical founders.

📰 News

OpenAI is creating a ChatGPT device designed by the former Apple Chief Designer.

Costanoa Ventures closes a $275M early-stage fund and a $119M Opportunity Fund.

Adam Neumann’s startup Flow launches a co-living community in Saudi Arabia.

Kiwibot acquires Nickelytics to turn its delivery robots into mobile billboards.

All Iron Ventures rebrands to Acurio Ventures and closes a €150M fund to invest in European startups.

💸 Fundraising

French healthtech unicorn Alan raises €173M at a €4B valuation.

Virtuous raises $100M for its fundraising software for non-for-profits.

UJET raises $76M for its AI-powered Contact Center as a Service platform.

Jump raises $12M to provide freelancers with employee-like benefits.

Fail(St)ory

Kyros In Trouble

Kyros, an addiction recovery startup, shut down this week, leaving hundreds of employees without jobs.

Founded in 2021, Kyros quickly became Minnesota's largest provider of peer recovery services, connecting patients with Certified Peer Recovery Specialists through a digital platform.

The company raised over $15 million, but it’s now at the center of a scandal that has forced its closure​.

By the Numbers:

• Founded: 2021

• Total Raised: $15 million from investors

• Employees: Hundreds, including Certified Peer Recovery Specialists

The Nonprofit Connection: Kyros’ downfall is closely tied to its relationship with Refocus Recovery, a nonprofit also founded by Daniel Larson.

Under state law, only nonprofits can bill Medicaid for certain recovery services. Kyros and Refocus Recovery operated in tandem: Refocus would bill Medicaid, and Kyros would provide the services.

But investigations revealed that this setup was being used to funnel taxpayer money improperly from the nonprofit to the for-profit arm, Kyros.

Authorities found that:

• Refocus Recovery was billing Medicaid for services not provided.

• Allegations included fraudulent billing practices, like charging for phone calls and social outings that weren’t covered by Medicaid.

Because of this, the Minnesota Department of Human Services cut funding to Refocus on September 6, citing “credible allegations of fraud”​.

Why It’s Important:

• Misuse of Public Funds: Kyros and Refocus were receiving millions in taxpayer dollars meant for addiction recovery, but investigations revealed misuse and fraud.

• Impact on Clients: The sudden shutdown left patients without critical support services. Many former clients reported that they were billed for services they never received.

• Ripple Effect: The closure of Kyros highlights the vulnerabilities in the addiction recovery industry, where regulatory oversight struggles to keep up with innovative but sometimes risky business models.

What’s Next: Kyros’ shutdown leaves a void in the addiction recovery community it served. 

While investigations continue, the story serves as a stark reminder of the consequences when ethical lines are crossed, especially in sectors dealing with vulnerable populations.

The fallout underscores the need for stricter oversight and transparency in how recovery services are funded and delivered.

Trend

China’s Startup in Free Fall

Two weeks ago, the Financial Times dropped a bombshell report, claiming that China’s startup scene was in free fall.

The number of new startups, they said, had plummeted from over 50,000 in 2018 to just 1,202 in 2023.

This news quickly made waves on Twitter, sparking debates about what’s really happening in China’s entrepreneurial landscape. Some people claim this the end of an era; others that this is just a misinterpretation of the data.

Why It Matters:

• Venture capital investments in China are down 82% from their peak, dropping from $145 billion in 2021 to $26 billion in 2024. This has left many startups struggling to find funding.

• Economic headwinds, tighter regulations, and geopolitical tensions are making it tougher for new companies to thrive. Investors are becoming more cautious, focusing on less risky, state-backed industries.

• The shift has hit tech hubs hard. Once bustling with new ideas and energy, many are now quieter, reflecting the reduced pace of startup activity​.

In Numbers:

• 82% drop in venture capital funding from 2021 to 2024.

• $26 billion invested in startups in 2024, a sharp fall from $145 billion just three years earlier.

• 1,202 startups founded in 2023 compared to over 50,000 in 2018​.

The Data Debate: But here’s the twist—some experts aren’t buying it. Critics argue that the Financial Times and other Western outlets are focusing too narrowly on VC-backed startups. 

Other data sources suggest millions of new businesses, many of them small enterprises, have been founded in recent years.

The discrepancy? Different definitions of what’s a “startup” are creating conflicting narratives about China’s entrepreneurial health.

What’s Next? The future of China’s startup scene might look different, but it’s not over. While private investments are down, state-backed sectors like AI continue to grow rapidly, offering a new path forward.

The challenge now is adapting to a landscape where innovation and government priorities are increasingly intertwined.

So, what do you think?

Help Me Improve Failory

That's all of this edition.

Cheers,

Nico