It is demonstrated over and over again that just having an idea and capital to put behind a venture is not enough. Without a doubt execution is everything and receiving interest from Venture Capital firms will not be THE way to get you from point A to point Z. Entrepreneurs should view a financing round closed and in the bank not as a milestone, but as a stepping stone.
In the book The Art of Startup Fundraising, I touch base on how to raise capital and how to execute in order to be an attractive venture to court investors. However, via this blog post I wanted to show the dark side of financing rounds and why companies that raised millions ended up shutting down even if they had a great future according to their plans and powerful pitch deck. In this regard, you can access the ultimate free pitch deck template below.
ACCESS THE ULTIMATE FREE PITCH DECK TEMPLATE HERE
ACCESS THE ULTIMATE FREE PITCH DECK TEMPLATE HERE
Moreover, there is something else that you will appreciate from this post. That is some of the names of big time investors that backed some of these ventures. This comes to show how even the greatest experts in the field also make their mistakes and how difficult betting on startup companies also is.
With that being said, lets go ahead and showcase the most expensive startup failures in history:
VC Investors: Redpoint Ventures, US Venture Partners, RockPort Capital, CMEA Capital, Argonaut Ventures
Total capital raised: $1.22B
Solyndra was founded in 2005 with headquarters in Freemont, CA. The company was a manufacturer of cylindrical panels of copper indium gallium selenide (CIGS) thin film solar cells based in Fremont, California.
Although the company was once touted for its unusual technology, plummeting silicon prices led to the company’s being unable to compete with conventional solar panels made of crystalline silicon. The company filed for bankruptcy on September 1, 2011.
The Washington Post published an interesting piece showing how deeply involved the government was with the company and how company announcements were delayed in order to avoid an impact on the political elections.
2) Better Place
VC Investors: VantagePoint Capital Partners, Lend Lease Ventures, Ofer Hi-Tech, Morgan Stanley, Maniv Energy Capital, Israel Corp, HSBC, General Electric (GE)
Total capital raised: $675.3M
Launched in 2007 with headquarters in Palo Alto, Better Place was a venture-backed international company that developed and sold battery-charging and battery-switching services for electric cars. Better Place was founded by Shai Agassi and Quin Garcia.
The company filed for bankruptcy in Israel in May 2013. The company’s financial difficulties were caused by mismanagement, wasteful efforts to establish toeholds and run pilots in too many countries, the high investment required to develop the charging and swapping infrastructure, and a market penetration far lower than originally predicted by Shai Agassi.
Moreover, the company was competing against Tesla and other car companies that had significant more financing than Better Place.
3) Amp’d Mobile
VC Investors: Highland Capital Partners, Columbia Capital, Redpoint Ventures, Heights Capital Management, Intel Capital, MTV Networks, Old LAne Caymen, Polygon Investment Partners, Quadrille Capital, Qualcomm Ventures, Redpoint, Rho Capital Partners, TELUS Ventures, Tudor Investments, Universal Music Group
Total capital raised: $324.5M
This company was founded in 2007 by Seth Cummings, Peter Adderton, and Mike McSherry. Amp’d Mobile was a mobile phone service launched in the United States in late 2005, and in Canada in early 2007. The company was a Mobile Virtual Network Operator.
Its primary non-Venture Capital investors were MTV Networks and Universal Music Group. The service targeted 18- to 35-year-olds, and was the first integrated mobile entertainment company for youth, young professionals and early adopters, and was, like Helio, a 3G carrier in the US specifically targeting that demographic.
Amp’d Mobile offered voice services as well as 3G data services such as wireless broadband based on Verizon Wireless’s EV-DO network, text and picture messaging, push-to-talk, and over-the-air downloadable applications and content (including Video on Demand) from its Amp’d Live service.
VC Investors: Kleiner Perkins Caufield & Byers, Goldman Sachs, DAG Ventures, Passport Capital
Total capital raised: $296.3M
The company was founded by former NASA engineer Erlend Olson in 2008. Terralliance Technologies, a secretive startup in Newport Beach, Calif., had developed an algorithm for telling petroleum engineers where to drill.
I was very shocked with the story of this company which Fortune covered very well on this post. It seams that its investors were charmed by Erlend Olson and that many of these investors didn‘t go in depth into its technology during the due diligence process.
Moreover, management was spending very fast the capital in unnecessary costs and the CEO owed the company $4M in expenses. Some of the companies investments included private jets.
Overall the story did not end up well for anyone involved. Kleiner Perkins ended up filing a suit agains the cofounder of this company for allegedly running away with some of the company‘s intellectual property to start a potential competing business.
5) Webvan Group
VC Investors: Sequoia Capital, Softbank Capital
Total capital raised: $275.2M
Webvan is well-known as the poster child of the dot-com “excess” bubble that led to the tech market crash in 2000. At one point Webvan obtained a $4.5B valuation in one of its latest rounds of financing.
The company was founded by Louis Borders. In summary, Webvan was an online “credit and delivery” grocery business that went bankrupt in 2001. It was headquartered in Foster City, California, USA, in Silicon Valley. It delivered products to customers’ homes within a 30-minute window of their choosing.
At its peak, it offered service in ten US markets: San Francisco Bay Area, Dallas, San Diego, Los Angeles, Chicago,Seattle, Portland, Atlanta, Sacramento, and Orange County. The company had hoped to expand to 26 cities.
While Webvan was popular, the money spent on infrastructure far exceeded sales growth, and the company eventually ran out of cash. Webvan placed a $1 billion (USD) order with engineering company Bechtel to build its warehouses, and bought a fleet of delivery trucks.
TechCrunch published an article outlining one by one its mistakes:
- Wrong target audience segmentation and pricing
- Complex infrastructure model
- Too much money, expanded too fast
VC Investors: New Enterprise Associates, US Venture Partners, SB Capital Partners, Oak Investment Partners, Morgenthaler Ventures, Merril Lynch, Lucent Venture Partners, H&Q Asia Pacific, Alloy Ventures, ABN AMRO Private Equity
Total capital raised: $260M
With headquarters in San Jose, California, Caspian Networks, Inc. was founded in 1998 as Packetcom, LLC and changed its name to Caspian Networks, Inc. in 1999. Caspian was founded by Internet pioneer Dr. Lawrence Roberts.
Caspian Networks, Inc. provided multimedia traffic management solutions for IP and Multi Protocol Label Switching (MPLS) networks. Its Apeiro, which acts as a network within the network, provides scalability and control, as well as management over traditional routing solutions. At one point the company had over 300 employees but right before announcing its closing was around 100 of them remaining.
Caspian made quite a splash in its early days. After raising an $85 million third round of funding — a round backed by Merrill Lynch & Co. Inc. , ABN AMRO ‘s private equity arm, and others — many thought the company was destined to be one of the tech industry’s next big IPOs.
VC Investors: Oak Investment Partners, Flatiron Partners, Amazon, Liberty Digital
Total capital raised: $256.5M
The company‘s elevator pitch was to be an “e-mmediate” internet-to-door delivery service. Kozmo.com was a venture-capital-funded online company that promised free one-hour delivery of “videos, games, dvds, music, mags, books, food, basics & more and Starbucks coffee in several major cities in the United States.
It was founded by young investment bankers Joseph Park and Yong Kang in March 1998 in New York City, and was out of business by April 2001. The company is often referred to as an example of the dot-com bubble.
In September 2013, the website kozmo.com announced that they would relaunch soon and its former CTO is at it again with a new company called MaxDelivery which delivers door to door in NYC.
VC Investors: Khosla Ventures, Alberta Investment Management Corporation, Artis Capital Management
Total capital raised: $252.9M
Dutch biofuels startup Bioecon and Khosla Ventures launched in 2007 a joint venture called Kior, which had the purpose of commercializing Bioecon’s process for converting agricultural waste directly into “biocrude,” a mixture of small hydrocarbon molecules that can be processed into fuels such as gasoline or diesel in existing oil refineries.
The process, Kior claimed, boasted numerous advantages over other methods of producing biofuels. They stated it could prove relatively cheap, relies on a nontoxic catalyst, by tapping into the present fuel-refining and transportation infrastructure, and producing as a result clean-burning fuels that can be used in existing engines.
Most of the people that have been interviewed have stated that KiOR made its mistakes based on hiring decisions and bringing onboard into the company individuals that lacked real operational experience.
For those of you interested in reading further Fortune published this interesting piece. On that piece it states there are class action law suits in process as well as other litigation procedures that are ongoing.
VC Investors: RRE Ventures, Kleiner Perkins Caufield & Byers, Andreessen Horowitz, Contour Venture Partners, FreshTracks Capital, General Electric (GE), Lowercase Capital, NVP, Village Ventures
Total capital raised: $185.3M
Quirky was founded in 2009 by Ben Kaufman. Quirky was a new type of socially developed product company founded with the vision of making invention accessible. Quirky’s community members, inventors and product “influencers,” ultimately shared its financial success with them.
On April 2010, Quirky received $6.5 million in Series A venture capital funding, led by RRE Ventures. The company later received a $16 million Series B round in August 2011 led by Norwest Venture Partners, and a $68 million Series C round in September 2012 led by Andreessen Horowitz and Kleiner Perkins Caufield & Byers. This was just the beginning of the financing the company would receive later on.
On July 31, 2015, Ben Kaufman stepped down as CEO of Quirky following a layoff of 111 employees due to trouble getting funding. On September 22, 2015, the company filed for Chapter 11 bankruptcy.
Ben Kauffman covered Quirky struggles on an article published by Business Insider that you can read here.
VC Investors: Wellington Management, Otto Group
Total capital raised: $176.3 million + at least $50 million of debt
Powa was founded in 2007 by British entrepreneur Dan Wagner. Powa Technologies was a UK-based technology company, known for its commerce, mobile commerce and e-commerce services. The company’s flagship product was the mobile application PowaTag.
As of early 2016, the company had run into financial difficulties, missing payments to staff and third parties. Its Hong Kong office had failed to pay its employees wages on time and to its ex-employees within 7 days, with some of the employees having to seek help from the Labor Department.
After the collapse of the business a series of articles by the Financial Times called into question several of the claims that had previously been made. Powa’s self-proclaimed 2014 valuation of $2.6 billion was investigated and it was concluded that $106 million (£75 million) was a more accurate figure.
Sources to put together this post included Wikipedia, CB Insights, Crunchbase, Fortune, and FT.