51 – Too Big to Succeed

Do you remember that company that raised at $1 billion valuation and sold for $15 million? How about that one that was the “hottest thing” ever, is still around, but never really became huge. This episode is about these companies… and about why some founders and investors can make a lot of money, while their companies fail miserably.

Navigation:

• Intro (01:34)
• Why “ka-ching” isn’t necessarily related to success (or failure)?
• The nasty ones
• The ones that are still alive, but not doing great
• The ones that did ok/well, but… should they have gotten that outcome?
• Why don’t all companies exit?
• Conclusion

Our co-hosts:

• Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
• Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Subscribe To Our Podcast

Bertrand Schmitt

Welcome to Tech DECIPHERED episode 51. We are going to talk about companies that ultimately became too big to succeed. What do we mean by too big? We mean that, in most situations, they probably raised too much to end up having some level of good success. The weight of their financing weighed on them, and what could be opportunities for the right exits.

Bertrand Schmitt

So, Nuno, let’s start about this and obviously we will talk about some pretty big companies that went under, some smaller ones that also didn’t go well, and some are still alive, just absolutely not where we would have expected them a few years ago, and not enough to make everyone happy in these companies. Maybe we start by explaining a bit more what is success or failure?

Nuno Goncalves Pedro

Let’s start with the punchline today instead of… Hopefully you guys will stay for the examples because they’re pretty cool. But let’s start with a punchline and why cashing isn’t necessarily related to success or failure. Why success sometimes on paper isn’t success in the end. It ain’t over until the fat lady sings. Probably not a very appropriate expression any more, but it really ain’t over until the company actually liquidates and everyone’s made their money, et cetera.

Nuno Goncalves Pedro

Let’s start with first principles: the first thing is a valuation on paper, a company is raising a private round of funding, a series B, a series C, a series D from venture capital investing, investors, even IPO ing, even going public into the stock market.

Nuno Goncalves Pedro

The valuation before any liquidation and an IPO would be an effective liquidation. Any valuation before a liquidation is on paper. It means what it means. It means that someone is willing to pay a certain price per share for the company at that valuation of the company. It doesn’t mean the company is actually worth that. It means there are certain actors that think that the company is worth that.

Nuno Goncalves Pedro

What it means is you can raise a ton of money, and in particular, you can raise a ton of money at a lot of valuation. You can be a unicorn on paper, so worth over a billion dollars. You can be a decacorn worth over $10 billion on paper. But that’s all on paper until there’s liquidation, be it an IPO, a full on trade sales where someone buys you out, et cetera, et cetera. Basically, it ain’t done yet.

Nuno Goncalves Pedro

Now, why isn’t cashing necessarily related to success? Why do people still make money? Well, people still make money because other things happen in the life of the company. When a company is raising, potentially series b or series c, it might be that certain investors or certain executives or founders of the company do what is called a secondary transaction.

Nuno Goncalves Pedro

What that means is they sell some of their stock to a third party that’s willing to buy their stock and gives them liquidity. It’s effectively a mini liquidation. They get some liquidity out of the stock that they have, and we’ll discuss some stories today of people that made a killing and their company failed miserably. People that made hundreds of million and their company failed in the end, investors that made a killing, that the company, in the end, also failed.

Nuno Goncalves Pedro

The correlation between the company failing or not, and you making no money is actually not necessarily there. You might have made money along the way. It might be, for example, that the company IPO’ed after your lock-up is done, which classically is after six months. Investors sold their stock, or they sold all of their stock. A lot of founders sold some of their stock, et cetera, et cetera, that they made a lot of money, and that the company dropped dramatically as a stock.

Nuno Goncalves Pedro

It might be the company’s nearly worthless now, but it was worth a lot at some point where people may have exited some of their positions. Again, money doesn’t correlate necessarily to success or failure. Success needs to be seen in a different light, which is the light of liquidation, not the light of “on paper valuation”.

Bertrand Schmitt

Yes. One thing I like to remind people, there is a big difference between the private and public markets. If you look at the private market, when we talk about valuation, valuation is set by really typically one lead investor. It’s not as if you’re in the public market. You have transactions every day happening, and you need a lot of investors to have a strong belief about the valuation of your business at the moment in time. Because if the valuation is too high, it will go down, the valuation is too low, it will gradually go up. There is some rationality in the market, at least step by step, and over the mid to long run.

Bertrand Schmitt

In the private market, it’s very different. As long as you keep finding that one investor that value your company where you want it to be, you are good enough. As long as this investor can bring the money or convince a few more to participate to that round, and that’s about it. We will see I guess, in many of these stories, you often end up having one investor that is willing to make a big leap in faith in term of valuation, in term of prospect for the company, in term of how much money to put to work.

Bertrand Schmitt

Basically, this has this ability to keep increasing price when technically a true market with multiple participants would not have come up with the same price. There is really a difference in pricing and therefore valuation. Another piece of the puzzle is a lot of private equity investors have to have a strategy to put a certain amount of money to work for each one of their investments. In some situations, that’s forcing a typical investment that might be too big versus what that company at this stage of the game should be really willing to take.

Bertrand Schmitt

Ultimately, valuations are connected to how much you put in a run. Typically it could be early on, 20%, later on, more 10% of your run, because you don’t fundraise for one or 2%, and you typically, hopefully don’t fundraise for 50% at once. It has also another impact. If you are a really big fund, you might force companies to fit your strategy by accepting big amount of money that might be too big for that company at this stage of the business. Let’s not forget, venture capital should be around investing step by step in a relatively, in some ways prudent manner, where at each level of new financing, you do that because you have reached new milestones and there is some agreement about what this milestone could be at different stage of different type of businesses.

Nuno Goncalves Pedro

We mentioned this in previous episodes. For those who haven’t listened to the those episodes, you should go back and listen to them. But valuation is a little bit like baggage. It’s like things that you’re carrying with you. It feels like, great, I’m worth a billion, you’re not worth a billion. Someone’s willing to give you money at a billion valuation, but there is an expectation that you’re going to reach at least that valuation and go well beyond it. That creates baggage. It creates like a bag of rocks that you’re carrying. You’re now carrying a whole lot of rocks. If you’re worth a billion, right, you really need to hit a lot more than a billion to be worthwhile for the last investor that valued you at a billion as a lead investor.

Nuno Goncalves Pedro

Shall we move to the nasty ones? Let’s go to examples. There are some fantastic examples here. I would make just one caveat before we go into the examples, which is there’s no investment advice in here. There never was in any of our podcasts. More importantly, we’re not dissing on anyone. I’m personally friends with some of the people we’re going to talk about today, so I just might flag some of them. I might not flag others. I don’t want to piss them off. It’s just things that happened, and we want to be showing you that.

Nuno Goncalves Pedro

The second piece is, we will mention a few things today that might be factually correct, but they are coming from different sources. It would be important at some point to put a grain of salt in some of the things we might say. We’ll try to qualify them when we say it, but just to put that in question, but let’s go with the first one. Quibi great, great company, huh?

Bertrand Schmitt

Quibi, I think everyone in tech is probably not want to say smiling when talking about Quibi, but I think this one is very odd company where a lot of people in tech, myself included, were expecting this company to fail from the get go. Let me explain to you why it was a company that was, and you might not know about it. It was a company started by Jeffrey Kastenberg and former HP CEO Meg Whitman.

Bertrand Schmitt

Both of them are really stars in their space. I think where people were suspicious were, okay, one knows how to make big movies, another one knows how to run an e-commerce business. But at the same time, what they were trying to do, launching a new streaming services where you build content and you launch streaming services itself and that is focused just for mobile consumption, and not just mobile in the sense of for the form factor of the phone, but also for a bite size consumption, was surprising in a day and age where you have big established streaming platforms already in place. Two, you have new native to the former platforms. What I mean is that you have the TikToks of the world and therefore the question was where are they fitting?

Bertrand Schmitt

It didn’t feel the typical startup approach where you start somewhat humble, you grow step by step, and then you deliver the good step by step here. In that situation, it was all in one go. I’m putting significant amount of money on the table before ever launching the service, and I believe they invested more than $1 billion.

Nuno Goncalves Pedro

They raised in total 1.75 billion. I think they raised 1 billion upfront.

Bertrand Schmitt

Yeah, 1 billion upfront. I’m not sure there is any other story of startups that raise so much in advance before even launching the service. Every other startups will talk about went step by step in term of I provide some service, I have some success, maybe I have too much too fast success, which give me the ability to raise too much, I’m not careful enough. But no one started so big with so much money, and I think that’s usually a sign that stuff might go very wrong, because you have huge expectation at the launch of the service and the minute these expectations are not met. You cannot go back. All your equity investors bought your story. If you are a few percentage wrong, that’s okay. But in their situation, I guess I’m not even sure they did 10% of their targets, you’re just dead.

Nuno Goncalves Pedro

They magically raised another 750,000,000 almost two years later. That’s why it was 1.75 billion in total. They got acquired by Roku, undisclosed amount. Which means it was like a wash in ways that cannot be described. But I think there are more fundamental issues to Quibi Kiwibi, to your point, they’re raising a lot of money up front, is always like huge amounts of red flags for me. Like, why would you raise so much money up front?

Nuno Goncalves Pedro

I know some of the best entrepreneurs in the world. I’ve been fortunate to meet some of them. They never raise this much money, to start. To your point, because they want to go in a staged way. They want to start building their team in a way that you start creating that culture, that initial thesis, understand if it works or not, put an MVP out for the product, see if they have to realign, pivot around, et cetera. You can’t pivot if you’ve made a big splash on a 1 billion product.

Nuno Goncalves Pedro

Their problem was actually fundamentally flawed, right? Because their bet was sort of twofold. One is that people obviously want to consume more and more on mobile, and they wanted to have shorter and shorter content to be consumed on mobile. They needed new content with a new tech. They had some tech around that content as well that allowed them to consume it, either landscape for portrait mode, et cetera, et cetera, blah, blah, blah.

Nuno Goncalves Pedro

Honestly, people just want to consume great content. I think in this case, and I know Jeff, he’s not a buddy, he’s not a friend. I know Jeff, I think he’s an amazing guy, but he should have been the one that should have figured that out. I mean, great content is just great content, right? People are going to consume it everywhere. If it’s like 15 minutes of an episode that takes 45 minutes, when I’m on my way to the work, I will do it on my mobile. It’s fine.

Nuno Goncalves Pedro

Why did we need a new format? More than that, it was tried in the past. You and I remember this because we’ve been in telecom world early on, and in the telecom world, they tried this. They tried, there were companies that were bet on this. There were companies by guys from Hollywood that tried this, that tried the short format stuff, and it never really stuck.

Nuno Goncalves Pedro

It’s not to say that short formats haven’t stuck. We knew that in user generated content, they have stuck. TikTok is stuck. The shorts on YouTube are sticking, but it’s a different type of content. It’s not this type of content. Again, some people might say they were too early. I don’t think they were too early. I think they got it wrong and they just raised stupid amounts of money. The raising of money, to your point, Betrand, got them stuck in a path where there was very little way back where they had to get and nail that V1.

Nuno Goncalves Pedro

I used the product, I still have it in some of my phones, and it was appalling. What would I consume? I mean, I watched a couple of things and even the content wasn’t amazing, right? Again, a total failure.

Bertrand Schmitt

The other piece of the puzzle is that when you bring these two-star ex CEOs, content creators, and you raise so much, everyone is waiting for you to fail.

Nuno Goncalves Pedro

[inaudible 00:12:45]

Bertrand Schmitt

My point is that it’s sad to say, but that means that every journalist was waiting to write a story about how their stuff was not working. My point is that there’s only one chance. Either you get it right from the first week or you’re dead.

Bertrand Schmitt

Because then you have a lot of negative buzz. How do you get out of a negative buzz? They became the joke of the week. Not immediately at launch, because people could see, as you say, it was empty, it was not quality, it was kind of useless versus your alternatives of either watching regular content on a smaller phone anytime, anywhere. Now you can. You can replay. Not a big deal.

Bertrand Schmitt

You have YouTube or you have TikTok for a different type of consumption. Again, a TikTok, a YouTube and Netflix, they all were started step by step. Netflix didn’t start to invest in production. They started step by step.

Bertrand Schmitt

I think that’s a key part of the puzzle. You cannot invent all the pieces at once. If you put too much money at once, typically it’s a big risk. Even if you have great people at the top, there is only so much you can do. There is a reason why typical investment go step by step and are synchronized to milestones that are representative of the success of the business.

Nuno Goncalves Pedro

Indeed. In this episode of Schadenfreude, and for those who don’t know what Schadenfreude is, it’s the pleasure derived by someone from another person’s misfortune. That’s the definition of it. If you guys remember the Simpsons, there was this sort of bigger kid on Simpsons that always laugh when someone else fell or did something stupid. The famous Aha. When someone did something wrong. That’s schadenfreude. We don’t derive pleasure from this. I mean, we obviously. I hope all of these guys. But anyway, it’s my little British joke today.

Nuno Goncalves Pedro

The second one is Katerra. A company that was going to revolutionize how construction was done and using a lot of methodologies and services and technology to improve construction at scale.

Nuno Goncalves Pedro

The numbers vary wildly. I mean, from 1.4 billion that they raised to 3 billion that they actually raised. Pitchbook is around 1.4 something billion. Maybe that’s what they raised in equity. Some other places say 2 billion. I’ve seen news, a Wall Street Journal news that said 3 billion in the end, I believe they filed for chapter 11. I don’t know what happened in the reorg and the restructuring of the debt. If there was some assignment then to creditors, I have no clue.

Nuno Goncalves Pedro

But that’s massive, it is a construction ish company. It was a tech construction company. They were going to do things differently. It’s another softbank. We don’t want to take a stab at them. I mean, it’s like you have to go big or go home. In this case, they went big and-

Bertrand Schmitt

They went home.

Nuno Goncalves Pedro

-did not get big, so they became home. They went big first, and then they went home, sadly enough. It’s a shame, because they were trying to revolutionize our construction zone. We know that we’ve had this promise of prefab for a long time. We’ve had this promise of new methodologies of construction for a long time. We are in dire need of more housing. It’s a shame it failed, but yes, what a massive failure. I mean, 1.4 billion raised, or 3 billion raised, maybe, with that and stuff. Incredible.

Bertrand Schmitt

It’s not just that, but it made more than 20 acquisitions. I mean, it’s a lot of acquisitions for any startup company to do, which is also, for me, raising some questions about, okay, what is the core of this business? I mean, if you end up doing 20 acquisitions, that’s, again, a lot.

Bertrand Schmitt

Especially for a company, if I remember well, and I was rechecking some articles that probably was not even having positive gross margins. I’m not even sure they had positive gross margin at any point.

Bertrand Schmitt

That’s super scary if you cannot reach that. I mean, who in their right mind keeps investing in such a business? That, for me, is very scary. Was there any technology or was it just all the process? My impression is that they were claiming they do end to end and prefab, but prefab okay, it’s nice, it’s good. I think there is some logic to it, but it looks like it has been tried before. Looks right. They try to do too much at once in term of trying to integrate too much of the construction industry in one company.

Bertrand Schmitt

But I think there is a lot to learn and another piece of the puzzle very quickly they brought some big name CEOs, like Michael Marks was the founder of the business, so definitely some big names. Another situation of celebrity founder/CEO, who thanks to his past, managed to raise a lot more than maybe anyone else would have been able to raise, given the situation of the business and the reality of the business.

Nuno Goncalves Pedro

A couple of insights here. They raised normally, I think the first two rounds, they raised 8.4 million in angel and seed round. I mean, large seed round, but obviously this is a construction tech company, and they wanted to build stuff.

Nuno Goncalves Pedro

Then they did a series b of 75 million, 160,000,000 series C. I think Softbank didn’t come into any of these rounds. Softbank came in at the billion dollar round, 900 and something million round with a few other investors, I would assume going a little bit more pearship, because then you have to grow very fast.

Nuno Goncalves Pedro

It’s a space that I’ve actually looked quite a bit at. Not the space specific that Katerra was on, because they were in a space of building larger buildings. I looked quite a lot of single family housing, et cetera, et cetera, and using for those types of houses, the prefab concepts and a lot of tech for it.

Nuno Goncalves Pedro

The issue is, as much as you can want to use tech and do manufacturing and pre-build stuff and do less things on site, you become a services company at scale, right? Because you still have to have builders, you still have to have people on site.

Nuno Goncalves Pedro

Regulations are funky. I’ve looked so much at the space. It’s funky by county, it’s funky by locality, and then you have licensing stuff. This is something that maybe they were onto something. I do not know. I can’t tell you if they had amazing tech or not. I was not an investor in the company. But certainly at some point you’re like, did they prove at some point that this was going to scale quickly? Were they ready to blitzcale from 75 to 100 and something million to 900 and something million in arrays? Maybe that was the point where it tipped over a bit too fast.

Bertrand Schmitt

We’ll talk more about WeWork, but it also feels it has some similarities with WeWork. We talk about gross margins that were extremely small. But there is also the question about the reality of the tech. Was there really any tech beyond I’m doing prefab somewhere else. I mean, what tech are we talking about when we talk about prefab?

Bertrand Schmitt

In a way there is that question around, was it just a construction company? This is fine. Constructions company are great. I have nothing against. The big issue becomes when you are trying to say you’re a tech company. Therefore I deserve tab valuation, therefore I deserve tech level of investment, when actually you are not at the core of the business, of how you do your business. That result in an horrible mismatch of investment expectation.

Bertrand Schmitt

One thing you talk about raising a billion dollar from some investor at some point, it comes with huge expectations of putting this money to work pretty fast. People rarely give you 1 billion to work, to use it sparingly over the next ten years. No, we give you a billion because we expect you at this point where you can scale very quickly, get good results, and maybe you need more in two years from now.

Bertrand Schmitt

The question is, if you use it very quickly and you use it wrongly, then it’s gone, and then it’s very hard to find anyone willing to provide another billion or 2 billion if it doesn’t go right.

Nuno Goncalves Pedro

The next one is Bird, Micromobility for the win.

Bertrand Schmitt

Yes, and I feel, Bird, we are going in that category that I respect a lot of companies that have truly reinvented a new industry in their situation, micromobility. They started in LA, they started with a few electric scooters. They started a revolution in how you use transportation in a different way, more efficient way. It was coming on the back of a few innovations. First is more electric motors being easier to manage and to charge. The other piece, of course, was your phone. The fact that these mopeds or scooters were easy to find through your phones, because this device themselves had a battery which can power up their gps location.

Bertrand Schmitt

Unfortunately, it came with a lot of issue. Where do you park them? How do you manage to charge them? What do you do about people who don’t leave them in a good spot? About the danger, obviously to others if people do crazy things with these devices. It came with a lot of issues, and I think ultimately the operational complexity might have been too much. Another piece of the puzzle is that America might not be ready for this type of devices at scale.

Bertrand Schmitt

If not America, maybe only a few cities in America are really designed for that college campus as well as some heavily dense downtowns. But you won’t have so many in America, obviously in Europe, in Asia, it’s a different story. But even there it was not a smooth ride. There were a lot of companies that tried micromobility and a lot of them failed. I don’t know the details of the inside stories. I’m sure there were some obvious mistakes and as usual, too much financing.

Bertrand Schmitt

Valuation went too fast. Too quickly. That’s part of the typical story. I don’t have the exact metrics in front of me, but I think it moved extremely fast. In maybe a year or so between the initial start of the service and insane level of investment, there was a race, if you remember, globally, among all of this type of business, there was a question of who will be first, would be first in all of these cities. Basically you need that money to move fast in a way, even before you could prove your model. Because if you take the time to prove your model, you will potentially end up being last. If you are last, it might be trouble.

Bertrand Schmitt

Especially that some municipalities didn’t want too many players. At some point they tried to limit how many players are operating. That logic to go first quickly was good, but at the end of the day, it means you cannot validate the model, optimize it, fine tune it.

Bertrand Schmitt

In a way, this is a different type of situation. These companies had some reason to have to move fast. Too much investment in the space by too many VCs, too much competition, and municipalities were giving pressure to be one of the first entrants at the end of the day.

Nuno Goncalves Pedro

I know the space really, really well. I was involved in a firm that had several investments in the space. I wasn’t involved in any of those investments. Bird was not one of their investments. But to be honest, they only made money out of one of their investments in the end and they didn’t make a huge amount. Question in my end is the space totally imploded? I’m friends with Brad Bauer, who did lime, and that obviously exited. Not a great exit either, but they exited.

Nuno Goncalves Pedro

I think it’s just a space. The E-scooter sharing piece, the bicycle sharing piece that the unicorn economics actually never quite worked. Then if you add hyper competition with a lot of well funded companies and then you put on top of it regulation, when time comes, you have the recipe for perfect disaster. I don’t think this is a stab at e scooters. It’s not a stab at ebicycles. There’s still market out there for people to own stuff and do stuff. But it is definitely a failure of right sharing.

Bertrand Schmitt

Maybe on that point it’s interesting to compare to Uber, because Uber definitely a successful company today. The difference is that they didn’t have to invent the technology. The car was already there. You could use Uber with an existing car. You didn’t have to manage the cars, you didn’t have to charge them, you didn’t have to do any of this. I think that was a big difference.

Bertrand Schmitt

In terms of regulations, yes, there were regulations around Uber, but different, I would say definitely less destructive with this micromobility services. You really had municipalities selecting which service would be the official service of the city or limiting to two or three. That was really a different situation versus an Uber where regulations were more general and there was not a numerous clauses, a maximum limited number of companies allowed to compete. For me, some interesting differences.

Nuno Goncalves Pedro

Moving to Fab.com, ecommerce play raised over 300 million. Jason, the founder, someone that I know very well as well, a lot of respect for him, know a couple of people that work there at scale, actually helped one of those people exit in a secondary transaction. Some of the stock that that person owned and that person made almost as much money as they made on the exit, which was rumoured to be 15 million.

Nuno Goncalves Pedro

They raised over 300 million. The exit is rumoured to have been around 15 million. We shall never know was definitely a unicorn back in the day. For those who don’t know the story, very, very quickly it was started as fabulous, which was not fabulous, but fabulous, which was a social network for gay men and their friends. Then it pivoted into an ecommerce play with daily designs and things like that. Grew fast, raised a lot of money, and then sort of imploded.

Nuno Goncalves Pedro

Would be interesting to sort of figure out what happened. It was one of the earlier plays around social commerce that got a lot of hype. Maybe that was why it raised so much money. In the end, the scalability of the business model wasn’t there, and then it failed, and it couldn’t raise more money, and so it sold for not much.

Bertrand Schmitt

Yes, and I think that’s also a company where it moved very fast. It raised a lot of money. I’m not clear that the unit economics justify any of this, because at the end of the day, if you have rational unit economics, you are still in a good situation, even if you raise too much. But if your unit economics are very wrong, you are kind of forced to keep fundraising. If you are forced to keep fundraising, and anything goes wrong. That’s when trouble usually comes.

Nuno Goncalves Pedro

The examples we’ve talked until now, the four examples, are all examples of blitzcaling failing miserably. You raise a ridiculous amount of money, and it just created all this stuff. Then the company couldn’t scale. Now, with Quibi, probably even. It wasn’t a blitzcaling example, just started with a blitz scale. There was nothing in it. There was a blitz scale.

Bertrand Schmitt

From zero to one in a day.

Nuno Goncalves Pedro

But the others are examples where blitzscale failed miserably. Probably none of a better example on blitzcaling failing miserable than our favourite, WeWork. We’ve mentioned it so many times now.

Bertrand Schmitt

Yes, WeWork is probably the poster child for some reason. It was more visible. I mean, it had a very visible funder. They raised a lot of money. If we look at valuation, it went up to 30 billion in valuation. That was private, just before the IPO. That’s when the CEO was forced to leave the business, just before IPO. If you remember all these articles before IPO about the funder.

Bertrand Schmitt

And then it went to 2 billion, then it went to 500 million, and now it went through chapter eleven in November 2023. Not a lot of news, actually, in term of its emergence out of chapter 11. I guess there might be a core business that might be more sustainable beyond chapter 11 once they’ve renegotiated the leases they had, if they can.

Bertrand Schmitt

It’s probably a story of company on any levels where you had gross margins that didn’t really make sense. You had long term investment like these leases, that were clearly wrong and done at the wrong time, when the market was very high, suddenly the market goes down, and you have the wrong lease, you are in trouble. That’s exactly what happened.

Bertrand Schmitt

There was the last piece of the puzzle, which is no technology. Trying to sell yourself as a tech company when you are not a tech company, therefore getting tech valuation, and ultimately there is nothing that make you a tech company. You should be valued like other players in the space, and there are some good ones, but there is no real reason to value you differently. But then when you have raised billions, it’s super hard, and you have a company that is not finely tuned, that’s very hard. Go back quickly enough.

Nuno Goncalves Pedro

They raised pre-IPO, I think, 9 billion. In total, if I believe these numbers, with pipes in it and debt and stuff, they raised close to 17,000,000,016.69 billion. I mean, it’s incredible. I think the key issue of this company is a company that was trying to trade with tech company multiples, that was always not a tech company.

Nuno Goncalves Pedro

To your point, not only they were not a tech company, as the real estate angle to what they were doing in some cases was just fundamentally and structurally incorrect. The leases that they had in place, the way they negotiated them in many cases, et cetera, et cetera, was just strong.

Nuno Goncalves Pedro

It was a big view. We’re going to create this huge community, a bunch of tech around it, underlying, to make people really interact as if they’re part of the same company, but they’re all part of different companies, just sharing a space. That is never the case. I mean, so totally overblown, massive, massive amount of spend into this.

Bertrand Schmitt

Yes. Lucky for the CEO, Adam Newman, it looks like he managed to do very well getting at least half a billion dollar, I believe, just before it imploded.

Nuno Goncalves Pedro

The secondary right?

Bertrand Schmitt

Yeah. Softbank was kind of locked in a transaction with him. Obviously it’s far from the valuation of paper he had given his shares in the business, but it was still, I remember, a very huge exit for him as a founder, while at the same time the business was totally imploding and every employee who was expecting to have a nice exit at IPO and change their life, got nothing.

Bertrand Schmitt

That was pretty stark contrast. It’s not a story of the CEO sold many years before. It’s totally independent. He’s not even running the business anymore. We’re talking about the guy who completely failed the IPO process, because during IPO, I think it became clear that the business was in trouble and was not a reasonable business, but still managed to get out of jail card just before the business imploding.

Nuno Goncalves Pedro

This is not a get out of jail free card. This is a please go to this resort card. I mean, with all due respect, I mean, you made 500 million or more.

Bertrand Schmitt

Yes. With your private jet and the new island you bought. It was very stark, and I would say for even a lot of hardcore capitalists like us, maybe too much to see, especially when it happens at the same time and looks like it was caused probably not just from the CEO. I think that a lot more were to blame, some execs, some investors. But still, it was kind of shocking for a lot of people who worked there and were hoping for a nice exit and believed all these stories.

Nuno Goncalves Pedro

For a more recent one, where the CEO did pretty well as well, Hopin, a virtual event play, where it basically recently sold what is seen as the key part of their business, which was the virtual event and webinar hosting product. They sold it to RingCentral, undisclosed. There’s rumors it was 15 million, nobody knows.

Nuno Goncalves Pedro

They raised more than 1 billion. Not the valuation, the valuation. The last round we know was 7.8 billion, that they raised more than 1 billion. The founder made a really nice cash out of 195 million is that correct?

Bertrand Schmitt

Yes, close to 200 million. What’s even more crazy is that this company was just started in 2020 or maybe 2019. It was really started just before the pandemic. Then suddenly everyone wants to go out of physical events, because the pandemic to virtual events makes sense.

Bertrand Schmitt

But then suddenly I remember his business really exploded in a positive way. I mean, everyone wanted to switch to something, and in a way, it was the only game in town. I understand that he was also trying to extract very crazy pricing. It created a lot of revenues quickly, but a lot of anger from potential clients.

Bertrand Schmitt

What looks like is that they definitely cashed in on that surge of business for maybe two years, or maybe at least a good year, and then it slowly died on and then quickly died on because we’re out of COVID and no one saw real value in virtual events. I don’t know, you know, but initially, personally, I had a positive mind around virtual events, but step by step, what I saw is that they just didn’t want to lose that on a regular basis. That approach of trying to translate to directly a physical to a virtual events was not really working.

Bertrand Schmitt

I’m not sure in the history of business, there was such a fast growth in valuation for any company from zero to 7.8 billion in two years.

Nuno Goncalves Pedro

This is a fat company. Everyone went on the fat. They had positive momentum through Covid when everyone was stuck at home. I think investors just wanted to propel it. Again, it’s a case of blitzcaling going wrong, right? Give me a lot of capital and I’ll scale it. Well, there was nothing to scale on. The company eventually couldn’t really make it work.

Nuno Goncalves Pedro

I do not know anything about the internals. Whether they had product issues or they had management issues, I have no clue. But basically it feels like a fat play, right? There was a fat play. They gave him too much capital, put to deploy too early, and they thought they probably had product market fit when they didn’t have it. Then when they were trying to scale it, it didn’t go to the next level. The CEO did. Well, I think is the conclusion, did better than the company I guess.

Bertrand Schmitt

But in a way it was smart to say, okay, there is a lot of investment on my disposal, maybe I don’t really know how to use all of this so quickly. I know I will get pressured to use a lot quickly in some ways make mistakes. Therefore, you know what? If you want me to accept so much investment, maybe I will just say yes, but in exchange of a big cash out, because I know I’m putting at risk my business doing so. That could have been a sort process, to be frank. What I also don’t know is how much others were allowed to cash out at the same time.

Bertrand Schmitt

To be fair, I believe they had pretty insane metrics in 2020, maybe up to early 2021. I think they went to zero to 100 plus million AR in six or eight months. From a pure metrics perspective, this was totally insane. Go back to your point. Ultimately it was a fat for sure. It’s easy to say that post Covid at the time we were all freaking, or most of us were freaking out. Definitely there was money coming because money was moving from physical events to virtual events.

Bertrand Schmitt

I remember in that space, the whole question at the time was how much will it stick? Is it something that will stay on because that’s a better way to run events or that’s an alternative way that people will see valuable and will keep using going forward. But ultimately it ended up being neither. It was just something that was not so useful the minute you can do physical events again.

Nuno Goncalves Pedro

Worst of all is now we have a bunch of companies going after that. There’s too many startups going after that, trying to raise money, which to be honest, I think is a bit of waste of resources for everyone involved. Maybe moving to the last example of those that failed miserably. Blue Apron.

Bertrand Schmitt

Yeah, I followed Blue Apron and like Bird, I feel they built a new type of business that ultimately might not have proven so successful, but at least they created a new category. That category of the meal you prepare at home, because you have received some ingredients and a recipe exactly tailored