Lessons from the startup graveyard
The startup grim reaper is time. Money buys you time; burn rate takes it away.
According to CB Insights, at least thirty-four startups have died in 2015.
It’s a sad fact of life that many startup will fail. Some of those failures it’s hard to feel bad for, because their existence were bad for the world (Example: Secret). Then there are those startups who go under, where we feel bad for them, but we understand what went wrong (Circa). And then there are many, many, more failures that most of us never notice.
But regardless of the company, every startup failure — on some level, even bullying apps like Secret— is sad. There were real people working at those companies, with real families, real careers, real ambitions.
In the last week I saw mention after mention on social media of the need for a new Fucked Company given the unquestionable froth in the system. I was a huge fan of Philip Kaplan’s site back in the dot com boom. When I read that Pets.com was about to go bust I ordered more buy-one-get-two bags of unsustainable cat food than you can imagine. (And a sock puppet I still have.)
But back then I was in my early 20s and had just moved here and I didn’t realize the human toll, and the pain and the jobs that go with any company failure. Now, nearing 40, and some 20 months after we last raised funding— statistically when most companies go under according to CB Insights— any humor, sarcasm, or grave dancing around failures feels wrong. Especially those who haven’t lied to anyone and don’t create something bad for the universe. Those who just didn’t get the breaks.
Far better for this era is CB Insights’ running tally of dead companies. They just updated the two year list with another 34, bringing the total to 135. Rather than their own opinion, they reprint in the founders’ own words— or occasionally those of their investors— about what happened.
College Inside View
I overestimated the likelihood that I successfully raise money…
Our ongoing plan was to monetize Circa News through the building of a strategy we had spent a long time developing but unfortunately we were unable to close a significant investment prior to becoming resource constrained.
It turns out we underestimated the complexity of the project, and overestimated our ability to complete it on a limited budget should, closer to launch, any complications arise.
I suppose our failure can be summed up quite easily: An inability to show traction.
Everything was going good. But we always had one issue. We never had enough money in our bank. And this became the cause of our death. We ran out of money.
At the same time, we are deeply disappointed that the market will likely take another several years to mature. As a venture backed start up, we did not have the resources to wait.
Ultimately, we were unable to secure outside funding at a time of critical growth and did not have the resources to fulfill demand on our own.
Don’t scale until you’re ready for it. Cash is king, and you need to extend your runway as long as possible until you’ve found product market fit.
By postponing the investor challenge, we also postponed — and thereby ignored — the distribution challenge. And Kinly is dead because of it.
And the rest of the conversation explained why they would not be doing that. My stomach dropped. I knew they were our best shot of getting the money, and some of the angels who had previously invested were interested in coming in but only if I could get a VC to lead it, probably for some oversight. We now had very little cash left, and very little time to find someone else.
This turns out to be the original sin of Dinnr — there never was an opportunity. And whatever we did later to try to breathe life into it (iterating on the website, different marketing tactics) was akin to giving aspirin to a deathbed patient.
Ultimately, I didn’t heed the lessons of so many failed music startups. It’s an incredibly expensive venture to pursue and a hard industry to work with. We spent more than a quarter of our cash on lawyers, royalties and services related to supporting music. It’s restrictive. We had to shut down our growth because we couldn’t launch internationally. It’s a long road. It took years to get label deals in place and it also took months of engineering time to properly support them (time which could have been spent on product).
But one day something changed.Money stopped coming in the door.
Recently I’ve had several conversations about the unsustainable cost of living in San Francisco and some of the unintended effects they’ll have. One is that people can’t “tinker” anymore-- they have to be all in and raise money, have money already, or work a full time job. Another is that college kids can no longer just move here and start something straight away-- they need to move here and get a job at a Google or a Facebook or the like first. I’m not sure the latter is such a bad thing. Everyone has their path, and if you have an amazing idea, go for it. But experience at another startup can shortcut a lot of the mistakes that tank companies.
For those who insist the Series A crunch isn’t real-- read through the whole failure list. The bulk of the explanations all boil down to time and money and growth-- which is to say: Money. Money buys more time and time buys growth if you have a great product or can iterate towards one. I quote this all the time from Naval Ravikant: “Companies only fail for two reasons: They run out of money or the founder gives up.” And only 35% of companies who get a seed round ever get a Series A. And, as so many tech reporters-- me included-- keep reminding you, these are the good times.
If you are one of the lucky ones who can raise money, raise a lot. And don’t burn it uncontrollably. Those two things put you ahead of the odds regardless of your product.