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For startup founders one of the toughest challenges is deciding how to fund your business. Do you bootstrap, invest your own savings (yes, you should have money in the bank before you build a startup), or do you raise capital? It can be an agonizing slog to pitch dozens of investors and deal with endless rejection, but often times it appears the most attractive funding path to pursue. News reports of newly-inked deals, big rounds and soaring valuations can breed dismay in founders who fail to attract the attention and the interest of prestigious VC firms. But the grass isn’t always greener, and the elusive term sheet doesn’t guarantee success, as hundreds of well-funded startups discovered in 2018.
2018 was a record year for venture capital in the US with VCs funding startups to the tune of almost $100B according to the Q4 MoneyTree report from PwC and CB Insights– the highest since the dot-com era. Big deals and bigger valuations abound and startups continue to pursue VC money to fund their startups and their dreams. Why is it then that some well funded —and in some cases heavily-funded— startups still struggle to survive? The truth is that venture capital does not provide a barrier against failure . The hundreds of VC backed startups that failed in 2018 can attest to that. Here are four startups that closed their doors in 2018 despite more than $1B in combined VC funding.
- Theranos: Topping any report on startup failures in 2018 is Theranos, a revolutionary blood testing biotech startup with arguably one of the biggest scandals in the tech industry of recent years. The Palo Alto based startup was the most high-profile failure of 2018 having raised over $800M according to Pitchbook data. In a male dominated industry, female founders watched in amazement as founder Elizabeth Holmes raised multiple funding rounds and hundreds of millions, all the while becoming a household name in the startup ecosystem. Theranos’ failure is all the more spectacular given its valuation of $9B. It turns out that the Theranos ‘riches to rags’ story has wider appeal beyond just tech circles as a movie is in the works with Jennifer Lawrence to play the lead role of founder Elizabeth Holmes.
- Lytro: After initial rumors that Google was to acquire the light-field camera maker, Lytro instead announced that it was to shut down in March 2018. The company had struggled to make a dent in the consumer market despite having raised over $200M. CEO Jason Rosenthal said in a blog post “The cold hard fact was that we were competing in an established industry where the product requirements had been firmly cemented in the minds of consumers by much larger more established companies.”
- Shyp: San Francisco based Shyp raised $62M to fund their on-demand delivery platform. Shyp initially targeted the consumer market with a $5 pickup fee premise. When the market failed to respond, they turned their attention to business customers but by that time had invested the bulk of their funds and so ultimately ran out of cash. In hindsight CEO Kevin Gibbon said “People close to me and the business began to warn that chasing consumers was the wrong strategy. After all, how often do consumers ship things? I didn’t listen. . . . While I did heed the advice eventually, I can say with certainty not doing so sooner is my biggest regret.”
- New York based Bluesmart, the makers of smart luggage, raised $25.6M to scale their smart suitcase business. They launched to great fanfare with the help of 10,000 crowd-sourced investors in 2014. However, after Samsung admitted last year that there were instances of its Galaxy Note smartphones exploding or catching fire due to defective batteries, airlines banned the phones and soon thereafter other objects containing lithium-ion batteries. Unfortunately for Bluesmart the batteries in their luggage could not be removed and so seemingly overnight their carryon luggage solution was no longer carryon approved. Despite best efforts, some things are simply beyond your control and in Bluesmart’s case (no pun intended) a new regulation signaled the end for the business.
There are many more stories; hundreds in fact, and there are lessons to be learned from each of them. But the truth remains that raising VC money is not the end goal. Rather, it is indicative of the beginning of a new journey for a startup and brings with it additional deliverables and governance. Getting funded does not guarantee success, in fact the struggle continues post-money… just with nicer offices . Unless you continue to raise funds, your hard-earned VC round will only take you so far and when it’s gone you had better be winning, or willing to pay the price.
January 28, 2019 at 02:32PM
Forbes – Entrepreneurs