Startup, Investing, Venture Capital(VC) are the hot topics of the current generation. Few years back people used to be obsessed with film stars, sportsmen and other celebrities. Now, the time has changed. People have got more inclined towards actual wealth creators like Entrepreneurs,VC’s, and private investors. The million dollar question is:- What has brought this paradigm shift ? The masses are now understanding the power of wealth creation. They understand that either they need to build a company or invest in good companies or both to amass wealth. They are slowly understanding the power of compounding and hence are getting more inclined towards business and investing.
Let me remind you readers, everything comes with a downside. Nothing in this world is full proof. So, with more and more people coming into the business and investing ecosystem, the ability of critical examination is gradually diminishing. What do I mean by critical examination? It simply means one focuses more on reward rather than focusing equally on risk and reward. People are not ready for failure because they haven’t imagined and prepared themselves for it. This is mostly because we are every now and then fed with only the glorious and successful stories of VC’s, Businesses and Entrepreneurs.
We at Transformationplus believe that success is a lousy teacher. We believe in learning from failures and moving ahead in life. In this blog we have discussed the 3 costliest failures of Venture Capital. We have brought in the insights of how, what and why of the failures.
Theranos Inc. was an American company founded in 2003. Elizabeth Holmes, the founder of Theranos, was 19 at the inception. It was a blood testing company. It claimed that it had built such a high-tech blood testing device which required only small amounts of blood as well as produced rapid and reliable results. However the claims were later proven to be false and deceptive.
At first it seemed such a revolutionary idea but later this idea couldn’t be converted into reality. All in all the company had raised around $1.4 Bn from venture capitalists and private investors. How did top notch VC’s get tricked by a 19 year old? The answer is very simple, the Total addressable market was immensely large with an edge over traditional blood testing methods. Apart from lucrative market size there were really tempting value propositions put forward by Theranos. Those were:- Small Blood Sample, Painless procedure, Speedy results(compared to traditional procedures), Inexpensive procedure.
All these superficial claims which tricked investors never really came into reality. This was too good to be a true claim, which at last failed.
To the common man it seems they are the ones who only get tricked. Even veteran high-profile investors sometimes get tricked by all those fancy and deceptive claims. Everything comes with a price and investing is no exception. In investing the focus should not only be on reward. The investors also have to do their due research on the downside and then take a calculated bet.
Jawbone was founded by Alexander Asseily and Hosain Rahman. The company at its initial stage was known as Aliph and later the name was changed. Jawbone was a wearable technology company. Jawbone was far ahead of their competitors in the beginning. At the time when there was no or zero competition they produced products like headsets, Bluetooth speakers, and fitness trackers. Jawbone had most of the qualities that a leading company should have. But the million dollar question is why did the promising Jawbone fail?
Jawbone had raised somewhere around $980 Million. It was backed by top VC’s (like Sequoia Capital , Khosla Ventures). It was an overfunded company. The company growth projections were extremely optimistic which led to extreme fundraising. The company in their later years fell short in front of its competitors. Their competitors were aggressive in pricing and this aggressive pricing was impossible for jawbone. With the big players like Apple Watch coming in wearable segments affected the bottom line and topline of Jawbone to the utmost extent. Also Fitbit was a major rival for Jawbone. Lately, Jawbone’s products were not as innovative as they used to be in the early days. This is the classic case which exemplifies the dark side of enormous funding.
What can one learn from this failed company? Founders and VC’s always need to keep in mind that only money cannot make a product/business successful. Market is supreme and the investors need to invest in those companies which have sound strategies with execution capabilities. Founder needs to do their thorough customer research/survey before launching a product. They have to ensure that there is actually a need among potential customers for their product. Jawbone was a classic case of a company which had a good start but bad ending.
Juicero was founded by Dough Evans in the year 2013. Dough Evans served as CEO till October 2016. The former president of Coca-Cola North America Jeff Dunn took over the position of CEO after Dough Evans. Juicero had a flagship product named Juicero Press, which was a complete failure. The Flagship product was a Wifi connected juice press. Oh wow, on the prima facie this may appear such a great product. Really, was Juicero Press such a great innovation? Let us dive deep to understand how veteran VC’s (like GV company , Kleiner Perkins) lost around $120 Million.
Juicero’s aim was to make the freshest Juice one has ever tasted. I can’t deny that I am a big fan of fresh and healthy juice, are you too? But how one earth a machine on its own would provide fresh juice? A user at first needs to have fresh organic fruits and vegetables packets provided by the company itself. After that all you needed to do was put it in Juicero Press, connect it to Wifi, and let the legend do its work. Such an easy peasy process, right. Let me tell you the flip-side of it. The initial pricing of Juicero at the time of launching(in 2016) was $699 only. But later in 2017(around January) it was reduced to $399 due to slow sales.
Why was Juicero Press a disaster? In 2017 Bloomberg News published a story showing that Juicero’s product packs could be squeezed by hand easily. Also, the hand squeezed juice was indistinguishable in quantity and quality from the Juicero Press’s output. Now you know why Juicero Press was a disaster. Even the veteran VC’s burnt their money on this ridiculosly stupid idea. The startup made extreme hype around its flagship product, but in the end it was a piece of crap.
VC’s were extremely wrong over this so called innovative and high-tech device. Sometimes we forget our baseline and hence do stupid and useless things. This was a burden in the name of innovation. Before predicting the future we need to first strengthen our basics and the same applies to renowned VC’s too.
I am so glad that you guys read this blog. This blog shows the dark side of Investing. Now you know how millions of dollars get burnt in the investment world. Investment world is not immune to failure. I believe that after reading this blog you will be able to focus equally on risk associated with investing and hence will opt for calculated risk.