In 2017 we had our first zero at Blossom Street Ventures. I’ll withhold the name of the company, but I do want to share key learnings from that experience. Below is an autopsy of a dead company.
Build a product for one market. Our portfolio company built phenomenal technology but didn’t actually productize. The technology had many use cases and applications, but we failed to apply it to one single product and focus that product on one single market. As a result, we weren’t recognized in any field, we weren’t thought leaders, and the sales team never focused on one niche were it could become an expert selling a solution. We were dumb generalists selling a technology. Build a real product, focus on one market, and don’t move to a new market until you’ve successfully established your company in that original market.
Watch your sales cycle. Although we signed contracts with big names like Facebook and Yahoo, it was always a custom project which took up team resources and had a very long sales cycle. As a result, our customers were not profitable enough given the money we spent closing and servicing them. Revisiting the point above, had we built a product around the technology, we could have said to a prospect “here is the product, if it’s a fit for you, sign this nifty SaaS contract.” If the product wasn’t a fit, no problem, we could have moved on and focused on our real prospects we could sell to profitably.
Cash is king. We did not grow fast enough given the cash burn. Period. If you’re going to burn cash, make sure you’re growing fast enough such that you can easily justify raising a new round at a new valuation when you’ve only got 6 months of cash left. If the revenue to burn ratio is too high and growth rate too low, if you’re lucky you’ll end up with a down round. If you’re unlucky, you’ll die.
Know your limitations. One of the issues with this company is we had a CEO who thought he was good at sales. On top of that he loved selling, so he made himself the head of sales. As a result we never had good sales leadership and never had the benefit of a real sales professional building out a team of AE’s, watching the sales cycle, monitoring metrics like ACV and upsells, etc. It’s important to know your limitations, identify them, and then hire talent to take duties off your plate which you’re not well suited for.
Know when it’s time to exit. Ironically enough, we had three opportunities to exit this business. In one case, we would have actually made money and the other two cases, we would have recouped about 80 cents on the dollar. In hindsight these would have been fantastic outcomes rather than zeroing out, but at the time these outcomes were viewed as very disappointing and no one wanted to get behind them. Each time we should have seen the exit through: investors would get some money back, the VC could focus on other companies in their portfolio, and the founders get to start fresh. Knowing when it’s time to walk away is valuable.
I could go on and may add to this post in the future, but above are the major flaws that ultimately resulted in the death of a venture backed company that could have had a better outcome.