Start-up Entrepreneurs' Blog

What Happens to Those Investor-Backed Start-Ups?

June 14, 2011

Many entrepreneurs start with a product or service concept and the next thought is about funding and attracting investors to the project. Some entrepreneurs do secure funding from a venture capitalist or other investors, and they are the envy of all the other entrepreneurs who don’t. Have you ever wondered what happens to those start-ups that are fortunate enough to receive funding from investors?

Here’s a story from a former member of a venture-backed start-up.

“Oh, and you couldn’t have known it, but I actually helped launch a social media start-up, Brickfish, a few years back that seems to have taken the path you describe.

I was working with serial entrepreneurs John Kernan and Sha Ghanem down in San Diego. We hustled up more than $11 million in series A funding from the likes of Dixon Doll’s DCM, Draper Richards L.P., Draper Associates, Mangrove Capital, and OCA Ventures. We had a bombproof technological underpinning. We even had a forward-looking marketing platform that was in synch with the market.

We generated more than 450 campaigns for the likes of Nike, Estee Lauder, Microsoft, Intuit, and others and generated over 10,000 unique URLS with 10 million unique engagers. Our CEO, Nichole Goodyear, was the exception to the male-dominated tech industry rule. I don’t believe I’ve ever worked with someone so on top of, well, everything.

But, after five years, we still couldn’t find a real way to monetize the business, so investors pulled the plug a few months ago. It’s amazing how any vestige of the company can disappear so immediately.”

This was a venture-backed start-up. It was in a hot, trendy market. It had the big name customers and it had many of them. It had the technology. They had the experience.  It wasn’t meagerly funded; it had enough capital to succeed. Yet, it didn’t.

Too often, entrepreneurs don’t know the failures. They envision them as some hopeless lot that should never have been funded in the first place – a start-up with a product that no one wanted. Clearly, this wasn’t the case.

Think of venture capitalists as farmers. They sow the seeds of new start-ups. After the seeds sprout and begin to grow, they prune away the less promising ones, they shut them down so they can focus on the more promising startups and hopefully, some of these will be harvested at maturity. I’ve met some irate entrepreneurs who were passionate about their products and companies, only to have them shut-down in the pruning phase – and believe me, they do take this very personally. It’s a blow to be closed, not because your company isn’t a viable business, but because it’s not viable enough as the other start-up.

This is not unusual. In fact, it’s more the typical result of venture-backed start-ups. In the past ten years, only 2% have reached IPO and this is what happens to the vast majority of those other funded start-ups. So the next time you are envious of those lucky enough to be funded, remember it’s the end result that matters, not the “being funded”.

Filed under: Start Up Funding

Tags: brickfish, john kernan, nichole goodyear, self-funded start-up, sha ghanem, shutdown start-up, venture-backed start-ups