On a Pale Horse
Startups are Dying
I’m a startup investor. We hold positions in over 110 startups in various portfolios we manage. When you invest in startups, you go in knowing that the majority won’t even exist in 7 years. You hope that the ones you pick return 10x, 20x, or even more, but you know that there will be losses along the way. The real mission is to pick 1-2 that return the total value of what you’ve put in (“return the fund”) and make your profits on the others who make it.
One of the confounding truths in startup investing is that raising too much money kills the company. I’m a believer in constraint-based investing, I don’t overfund companies who haven’t earned the right to use the money. As soon as I see a startup where all the big investors have piled in, the CEO spends more time speaking about raising money than he does running the company, the offices are way too cool, and the corporate policies don’t ultimately tie to sales, I sit back and wait. I may not be right every time, but way more so than not, that startup implodes under the weight of its own capital and the expectations capital carries with it.
To wit, this week I took note of several startups that shut down recently. Several of these pitchdecks are in my CRM where I track deals. I passed on each of them for various reasons, and sometime that reason was I couldn’t afford the check size, but most of the time I could tell the team wasn’t focused on the business as much as spinning a tale about what the business could be.
OliveAI. A health tech company which started by promising to bring robots to healthcare, pivoted to the very unrelated field of supercharging hospital revenue cycle management. They raised scads of money — north of $850m at valuations around $4b. We were approached to invest, not in the company, but in its “venture studio” where it taught other health tech companies how to grow, secure capital and break into the healthcare market. I knew right then that it wasn’t for us. When you take your eye off the ball in a business where you aren’t executing that well to begin with in an industry that has caused the death of more startups than any other, you’re the walking dead. RIP.
Bello. About 3 years ago it was all the rage to invest in celebrity-founded companies. Gwyneth Paltrow has some company that does skin-care or something on body parts that don’t get talked about in polite society. JLo had some company that did something I can’t remember. Every actor has his own Tequila company. These folks are worth so much money but need mine to grow the value of the stake they hold in a company where all they contribute is their fame? No thanks. Bello was founded by Kristen Bell who I think is just delightful on screen. It made baby strollers, blankets, binkies or whatever. Suprisingly, it seems that beyond being a mom who buys those things and singing in Disney movies, Bell doesn’t know much about running a business like that. She knew how to parlay her success into an $80m fundraise, though, but none of the Benjamins were mine. RIP.
Convoy. Uber for freight. This one I liked but couldn’t write a check big enough to get in. The logistics planning process is complicated and stuck in the past. Telephones, Fax machines (really), and who-knows-who-that-drives-what is how business gets done. Upending that industry by adding in an entire new connection layer seemed brilliant to me. Sure, tying all those pieces together is complicated but that’s what you raise — wait for it — $2.3b (!) for. I wanted in because I figured the IPO would go great and we’d ride the wave of “We need more shipping because of supply chain” to big bucks. It turns out that the supply chain was maxed in the first place, it never grew, it only shrank, and no one needed to pay someone to find them loads of stuff to deliver. It didn’t help that the founder was constantly on a stage talking about how the fundamentals of the world economy had changed. They hadn’t, they haven’t, they won’t. RIP
Shift. A used car marketplace to compete with the dozens of other used car marketplaces but this one was all black-and-white in the website design because consumers want to focus on the product, not the site. I kid you not, that was basically it. They asked us for $1m on a $1.8b valuation and literally had sold less than 1,000 cars. Used cars aren’t hard to find. There are 54 dealerships in my small town that sell them, CarMax online, the other company with the vending machine thing. To be fair, the team pitching the deal all looked like they stepped out of an Abercrombie and Fitch ad so I paid attention. When I turned them down they were so polite almost like I had done them a favor. RIP
I’m sure there were more but these were the ones that stuck out from my records.
“Money doesn’t like noise. Wherever there’s lots of money, it’s always quiet. You go to the bank? It’s quiet. You go to a rich neighborhood? Quiet. The loudest places and the loudest people are normally the brokest.”
—M. Bongeni
It’s not fair, of course, only to point out where I didn’t invest my money and then say “Toldja.” That’s a game anyone can play whether they wrote a check or not. Much better to point out where my money went wrong and the bet I placed was bad. These startups also went bust and I’ll share why I invested and what I think happened. None of this is privileged information, all gleaned from emails from the companies.
Artifact. I loved this idea, a lot. For $300, you could get a professional interviewer to record a 3 part audio interview with someone in your life and have it sound like one of those really cool NPR shows. There is an art to interviewing that I respect when I see it. My friend, Matt Andrews, and so do others. There is an art also to editing the captured interview into being something really compelling. The idea was to capture these interviews with grandparents, business partners, any relationship worth enshrining for future generations. The price point was probably on the cheaper side, the product was really good, and the product market fit was never there. People didn’t care, they didn’t buy. The company raised around $2m if I remember correctly, we had a very small stake through a YC fund. They shut down last month. RIP.
Booster. Millenials and whatever comes next consume media differently from everyone else. They are constantly consuming it and want tools to help them know what to watch. When it comes to sports, this means choosing your favorite teams and having an app called Booster let you know when something amazing is about to happen and then you can tune in to watch it, or buy a snippet of it when it happened. The company had good technology, good leadership and strong relationships with the content owners like the MLB and NBA … until it didn’t. The leagues began to realize that they wanted to own the same relationship with their fans and pulled out. The company is in the process of shutting down now. I never should’ve invested. I didn’t like it, didn’t understand but thought the people bringing it to me were smarter than me on this. It turns out that they were trusting someone else on the investment and it was far outside their normal buybox, too. The blind leading the blind never equals a good return. RIP.
Fanmoments. Gary Vee does NFTs for old sports moments. Want to own the digital rights to Dr J dunking in 1978? Nope, neither did anyone else. WTH was I thinking? What part of any of that makes a business? What part of it do I understand? Nothing, none and that’s what’s left of my investment. Idiot! RIP.
“Worker bees can leave /
Even drones can fly away /
The Queen is their slave.”
—Chuck Palahniuk
And now just for fun, I’ll give you some of the decks for companies I’ve recently seen that have no shot. They are raising money, sometimes big money, but it won’t work out. The great thing about me making these predictions is that I’m already ahead of the game because most fail anyway, but just assume I’m super knowledgeable and if one of them makes it big, don’t rub my nose in it.
Hero HR. This is yet another HR and payroll SaaS company raising money on the sole idea that they are valued at $1b+ today. They have technology, they have customers, but do we need another solution to this thing that isn’t really a problem for 97% of businesses in the country? That plus the absurdisms that spout from the CEO’s mouth like “This sounds crazy, but we have the ability to restructure the global financial system,” will prove me right. My prediction is no and they will fall big before closing the doors or doing the fire sale dance.
CoPilot. Software that matches remote fitness coaches with consumers. I’ve literally seen some version of this stupid thing 12x. It isn’t hard to find a fitness coach. They have them at gyms, where healthy people go. They also have them in apps and on AppleTV. The world doesn’t need a cooler way to do what it is already doing. Insisting to me that people aren’t working out enough because they don’t have the right remote fitness coach isn’t tenable. The $6m they just raised will never see investor pockets again.
Humane. I love the idea and have said so for years: give me a wearable camera capturing every moment of the day, apply software intelligence to make the data accessible when needed, charge me $100 a month and I’m all in. This company is doing exactly that … and they just raised $100m to do it. No, son, just no. That’s too much and will convince you that you are the best thing ever. The idea is too simple to spend that much on. Look for the CEO to be on stages instead of in the boardroom soon. Great idea goes bust soon!
It’s all in good fun, of course. I don’t wish any company that is really pushing the innovation curve any ill-will. Without this kind of economy, most of the really great things we enjoy today wouldn’t exist. It’s one reason I like investing in early stage, getting behind a vision, and hoping for that big payday!