Pando

With bullying app Secret on life support, investors learn the risk of investing in assholes

By Paul Bradley Carr , written on December 6, 2014

From The News Desk

A cautionary tale for any startup founder who thinks his or her app is too popular or powerful to fail.

You might recall, back in July, Pando's Sarah Lacy called for investors to "stop trying to justify the lies and libel" of bullying app, Secret. In response, Secret's CEO, David Byttow, responded that he didn't much care about teens being bullied on his app so long as traffic kept pouring in. Byttow's comments caused a minor media storm, especially when the company's head of PR, Sarah Jane Sacchetti, responded in the most un-self-aware way imaginable, complaining that people were bullying her.... bullying app.

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For a while, the company tried to hold firm in the face of the worsening storm, insisting its existing anti-bullying policies were sufficient to protect teens -- at least until Fortune's Dan Primack showed that they were anything but. Eventually, with anti-bullying campaigners intensifying their demands for changes to the service, lawmakers in Brazil moving to ban the app, and Sarah Lacy once again calling on investors to act if Byttow would not, the company finally announced it would take steps to ban bullies from its app.

That was four months ago.

Yesterday, Gigaom's Carmel DeAmicis (a Pando alumna) published a stunning report on how Secret is doing today. The short version: The company is on life support, or as it's called in the Valley "preparing to pivot." Traffic to Secret's website has cratered, to the point where it's too low to even be measured by Comscore; downloads have flatlined and Sarahjane Sachetti has quietly left the company, apparently not voluntarily.

 [D]ownload rates at home and abroad have plummeted. Its web visitor and mobile app user numbers are so low Comscore doesn’t track them. Stories about it have dropped off, taking the app from the top percentile of Google’s search rankings in the United States to the bottom half. And a key early employee has quietly departed...
The company is hoping a dramatic pivot will save it from the scrap-heap:
It’s not looking good for the company, which has raised $35 million in venture funding in its short lifespan... It looks like Secret will be majorly overhauling its product soon. The company did not want to share more information, but CEO and co-founder David Byttow told me “dramatic” changes would be coming next week.
The fall from grace is shocking, but also not surprising.

Sure, the company's investors -- including Index, Google Ventures, Kleiner Perkins, and Redpoint as well as Reddit founder Alexis Ohanian -- might have told themselves and the press that Secret was popular despite the bullying. [Disclosure: Redpoint is also a Pando investor, as is Index GP Saul Klein.]

Responding to concerns of bullying on Secret, Ohanian wrote that "anonymity enables us to be truly honest, creative, and open." In a gushing (and in hindsight, somewhat embarrassing) blog post, Redpoint partner Ryan Sarver, who lead the Secret deal, claimed the app would empower whistleblowers and strike a blow against oppressive regimes:

From whistleblowers, to citizen journalists trying to get information out from under oppressive regimes, to the deeply personal, to the funniest parody accounts, anonymity allows expression that wouldn’t have otherwise happened... We think it’s a fundamental and important part of social connectedness and we’re incredibly excited to back David ByttowChrys Bader, and the rest of the Secret team.

More importantly, at Redpoint we invest in great teams and we have been blown away by the Secret team’s ability to recruit, build and execute. They are one of the strongest teams we’ve seen and we think it gives them a huge competitive advantage to build and adapt a product to the emerging needs of their community. And sure, a small number of "contrarian" journalists might have defended Secret on similar grounds. DiAmicis' colleague at Gigaom, Mathew Ingram, was quick to take the company's side against Pando's anti-bullying "invective":

"Over the past few days, Pando has published no fewer than five posts about how reprehensible the app is... Is all of this invective justified? It’s difficult to see how." To support that position, Ingram cited noted Secret expert.... CEO David Byttow: "In an interview with me on Tuesday, Byttow said that he and his co-founder take bullying and suicide extremely seriously, and have been doing their best to deal with the downsides of anonymity."

Still, it seemed clear to most observers that Secret was, first and foremost, a bullying app and that killing those bullies would also mean killing Secret's reason to exist.  As I wrote when the company announced its anti-bullying update: "Secret is about to get a lot less scandalous, and a lot less popular."

And so it did. Writes Gigaom's DiAmicis:

Data suggests that around the time Secret tamped down on cyberbullying, its user growth slowed. After [Pando's] criticism about harassment on the app, the company started making changes to the way it moderated posts. It introduced new restrictions — like no posting names — and its US iOS rankings [crashed] at exactly that time.
It'd be nice if the lesson from Secret's demise was that toxic companies always get their comeuppance. But as we've learned from Uber in recent weeks, that isn't always true.

There are, however, clear similarities between the two companies: An arrogant CEO who believes he’s untouchable, an unwillingness to fire senior execs who make serious mistakes, and investors reluctant to act in case it jeopardizes their payday. As with Uber, there were also mounting calls from law enforcement and politicians for Secret to get its house in order. In Israel, Knesset Committee for Children’s Rights chairwoman Orly Levy-Abecassi warned that  “the application turned into a platform for cyber-bullying for Israeli youth, who, in many cases, used it to smear and harm others.”

There’s possibly another parallel too: DiAmicis slightly buries the lede when she reports that Sachetti departed “around the time of the Brazil ban.” Brazil moved to ban Secret on August 19th — the same time as Secret announced its new anti-bullying policy, and just two weeks after Sachetti apologized for her gaffe. Sachetti wouldn't confirm to Gigaom why she left the company, saying only that she "thought she’d be at Secret a long time" but, if DiAmicis' is correct on the timing, it looks very much like Byttow waited just long enough for no one to be paying attention to Sachetti before he quietly edged her out. [I've asked Byttow for comment on Sachetti's departure and will update this story if he responds.] Now we’re hearing rumors that Uber is likely planning a similar strategy: Publicly supporting bad executives right now to avoid appearing weak, but planning significant management changes once the current PR scandal dies down.

But there's one major difference between Uber and Secret: For all its flaws, Uber is a genuinely useful service, and one that promises to give work to 1 million new drivers next year alone. It just so happens to be operated by a deeply unpleasant company. That's a hugely risky state of affairs, but clearly survivable.

Secret, by contrast, is an unpleasant company offering an inherently unpleasant service. As the company's amoral investors have learned to their cost, that combination is nearly always going to be fatal.

Oh, and there's one more lesson for investors about investing in assholes: If they seem to be heading for the door after a just a few months, you probably should do the same. At the same time as Secret asked investors to pony up $25m to fund the company's "growth", Byttow and his co-founder Chrys Bader-Wechseler personally cashed out $6m. That big payday came just six months after Secret launched, and less than a month before Byttow told the world he didn't care about the victims of bullying.

It must be some comfort to the company's employees and backers, not to mention the countless teenagers whose lives have been reportedly ruined by Secret, to know that the company's bully in chief will live to fight another day.