Startup Hor­ror Sto­ries


Computer Shopper - - CONTENTS -

From $400 Wi-Fi-en­abled juicers to mul­ti­mil­lion-dol­lar firms that have pro­duced pre­cisely noth­ing, Sil­i­con Val­ley is full of tales of ex­cess and hubris. Ni­cole Ko­bie steps into the bizarre world of tech star­tups

J uicero is per­haps peak startup.

The web-con­nected cold-press juicer takes a bag of chopped fruits and veg, scans its bar­code for in­struc­tions, and then squeezes it into your glass for a fresh glass of healthy juice. The ma­chine it­self cost $400, while the bags of chopped bits ranged from $5 for ‘Beta Glow’ (car­rots, or­ange, le­mon and gin­ger) to $7 for the spe­cial edi­tion ‘Sum­mer Bliss’ (wa­ter­melon, cit­rus, beets and more car­rots).

That’s a hefty sum for a glass of cold-press juice, given you can pick up a half litre of the stuff at Waitrose for £2.80, but that ques­tion­able busi­ness model al­lowed Juicero to raise $120m in ven­ture cap­i­tal in­vest­ment.

Ev­ery­thing was tick­ing along nicely – un­til a pair of Bloomberg re­porters de­cided to try squishing Juicero’s bags by hand, and it worked as well as the $400, Wi-Fi-en­abled Press. Whoops. Juicero shut down all op­er­a­tions just 18 months af­ter launch, af­ter manag­ing to shift over a mil­lion Pro­duce Packs.

Such is the world of star­tups, where in­sane amounts of money are thrown at silly, untested busi­nesses run by founders with no ex­pe­ri­ence. How much money are we talk­ing? The UK saw £6.7bn in pri­vate eq­uity and ven­ture cap­i­tal tech deals in 2016, with star­tups in Sil­i­con Val­ley rais­ing $25bn in eq­uity fund­ing last year.

Of course, plenty of ge­nius ideas come out through the startup world: with­out it, we wouldn’t have Spo­tify, Net­flix or PayPal – all com­pa­nies we’re more than happy to have around. But the pay­back on such suc­cess­ful firms in­spires plenty of in­vestors to throw money at less clever ideas in the hopes of win­ning big, and drives any­one with an idea to dream they could be the next tech bil­lion­aire.

We don’t be­grudge any­one with a dream in their heart or an idea in their head, but it’s hard not to roll your eyes or snort with laugh­ter at some of the star­tups that have been handed more cash than most of us will see in a life­time.


Sil­i­con Val­ley – and the en­trepreneurs that dream of its rolling hills and stacks of cash – loves a bonkers idea. There was once an app that let you send the word ‘yo!’ to your friends, and an­other called Wash­board that charged $26 to de­liver $20 worth of coins for use in laun­dro­mats. Matt Kup­pers, CEO of con­sul­tancy Startup Man­u­fac­tory, says of the Yo app: “There was zero pur­pose, and yet it got really good trac­tion. Peo­ple just liked it. It’s all down to the mar­ket – the mar­ket de­cides which idea is silly or not.”

It’s not al­ways amus­ing apps or over­priced juicers, how­ever. Ther­a­nos was the talk of the town in 2015, with its prom­ise of fast and cheap pin-prick blood tests that would rein­vent lab work. It was val­ued at $9bn off the back of $700m in in­vest­ment, win­ning founder El­iz­a­beth Holmes the ac­co­lade of youngest fe­male bil­lion­aire ever.

Ex­cept the tech­nol­ogy didn’t work, a fact un­cov­ered by Pulitzer prize-win­ning Wall Street

Jour­nal re­porter John Car­rey­rou; not in­vestors or the board of di­rec­tors. The com­pany’s main prod­uct, dubbed Edi­son, was banned by the US Food and Drug Ad­min­is­tra­tion (FDA), which barred Holmes from own­ing or run­ning a med­i­cal lab. The com­pany has had to pay set­tle­ments of $4.6m to the state of Ari­zona over in­ac­cu­rate blood test­ing, among oth­ers. De­spite all that, Ther­a­nos con­tin­ues to be in busi­ness, de­vel­op­ing a new lab plat­form.

Bene­dict Evans is an an­a­lyst who works at An­dreessen Horowitz, one of the most fa­mous of the ven­ture cap­i­tal firms in­vest­ing in star­tups. In a blog post, he sug­gested that silly-look­ing ideas of­ten prove im­por­tant or valu­able.

Evans writes: “It is un­ques­tion­ably true that many of the most im­por­tant tech­nol­ogy ad­vances looked like toys at first – the web, mo­bile phones, PCs, air­craft, cars, and even hot and cold run­ning wa­ter at one stage looked like fad­dish toys for the

rich or the young. Even video games, which lit­er­ally are toys, are also largely re­spon­si­ble for the GPUs that now power the take-off of ma­chine learn­ing.”

He notes that plenty of ideas are silly and never amount to any­thing. Evans ad­vises con­sid­er­ing whether some­thing doesn’t work, or won’t mat­ter “even if it does work”. Juicero, as our own ex­am­ple, cer­tainly made cold-press juice, but it’s hardly a so­ci­ety-trans­form­ing prod­uct even if it does a good job squishing car­rots into liq­uid. On the other hand, teen-mes­sag­ing app Snapchat is worth $25bn af­ter its IPO, prov­ing long-term im­pact isn’t so easy to judge.


It’s amaz­ing how much it can cost to de­velop an app. There are the staff costs, of course – and those in-de­mand devel­op­ers don’t come cheap – as well as of­fice space, mar­ket­ing ef­forts and other stan­dard busi­ness ex­penses, but few plan for the charges that seem com­mon to many failed star­tups, such as swanky of­fices or bonkers par­ties.

Mu­sic so­cial net­work Crowd­mix is one such ex­am­ple. It moved into the old of­fices of gam­ing startup Mind Candy – which was tight­en­ing its metaphor­i­cal belt – and paid to re­move the slide (yes, really) that staffers took to de­scend be­tween floors. Crowd­mix later in­stalled a re­cep­tion desk that looked like a ghetto blaster, com­mis­sion­ing ‘graf­fiti’-style art­work for the walls in the Lon­don of­fice, and a chan­de­lier for its Venice Beach, Cal­i­for­nia head­quar­ters – all be­fore a prod­uct had launched.

The founders stood in front of the street-art style walls when they laid off staff last year, telling them they may not get a re­dun­dancy pay­out. The com­pany re­port­edly burned through £14m in fund­ing be­fore it was bought up by one of its main in­vestors.

And then there are the par­ties. Powa Tech­nolo­gies was one of the first Bri­tish ‘uni­corns’, jar­gon for a com­pany val­ued at more than a bil­lion dol­lars, and it was seen to be worth $2.7bn af­ter var­i­ous in­vest­ments for its PowaTags, which made it eas­ier to shop with a smart­phone by scan­ning bar­codes and QR codes.

The busi­ness went into ad­min­is­tra­tion in 2016, amid sto­ries of May­fair Christ­mas par­ties with free cham­pagne and top­less dancers with neon body paint, with ad­min­is­tra­tors Deloitte not­ing losses of £30m a year on sales of less than a sixth of that. Powa’s CEO Dan Wag­ner dis­putes the sto­ries.

If true, it’s not how many in­vestors want their money spent. As Tony Crad­dock, di­rec­tor gen­eral of the


Emerg­ing Pay­ments As­so­ci­a­tion, told Busi­ness

In­sider: “You don’t serve cham­pagne all night for a startup. You just don’t.”

Busi­ness In­sider also has a grand story of the co-founder of Fling – a so­cial me­dia app we hadn’t heard of either – chuck­ing a pro­sciutto ham Pret a Manger baguette at the head of his 80-year-old fa­ther, who just hap­pened to be his lead in­vestor and one con­tribut­ing £5m of the to­tal £17m or so raised.

Fling­ing sand­wiches wasn’t their idea of a party, to be clear: in­stead, founder Marco Nar­done ap­par­ently brought girls into his of­fice for a ‘frolic’ while staff worked 19 days straight to fix prob­lems with the app that saw it booted off Ap­ple, even­tu­ally de­camp­ing to Ibiza, that well-known busi­ness hub.

The re­port also sug­gested Nar­done spent com­pany money at posh restau­rants and on first-class flights, as well as a mar­ket­ing tour around the US, while pay­ing him­self £204,000 a year. The com­pany even­tu­ally went bank­rupt.

Party costs didn’t drag the com­pa­nies into the ground – that can usu­ally be pinned on man­age­ment is­sues, mar­ket fail­ures or prod­ucts that sim­ply didn’t take off. But such com­pa­nies splashed around in cham­pagne while their ideas foundered.


Chuck­ing baguettes at your big­gest in­vestor (and your own fa­ther) isn’t the only bad be­hav­iour at star­tups. This year has seen many a melt­down among var­i­ous founders and their in­vestors.

Per­haps the most in­fa­mous ex­am­ple is Uber. The cab-hail­ing-cum-ride-shar­ing app may not seem a startup to most of its mil­lions of users, but it’s yet to make a profit, leav­ing it chew­ing through in­vestor cash. The past sev­eral months have been marked with a #deleteUber cam­paign af­ter the com­pany mis­judged a taxi strike con­nected to the US travel ban; a ban across Lon­don af­ter Trans­port for Lon­don took um­brage at its op­er­at­ing meth­ods; a blog post by for­mer em­ployee Su­san Fowler, ac­cus­ing the firm of sex­ism; a law­suit from Google over self-driv­ing car tech; re­ports of a soft­ware tool called Grey­ball that Uber used to avoid au­thor­i­ties; ac­cu­sa­tions that a staffer in In­dia ac­cessed pri­vate data on a woman ac­cus­ing a cus­tomer of rape; for­mer CEO Travis Kalan­ick caught on video ag­gres­sively ar­gu­ing with one of his own driv­ers; and said for­mer CEO even­tu­ally los­ing his job af­ter a let­ter sur­faced that he wrote to em­ploy­ees ad­vis­ing them of sex rules for a com­pany party.

Many of the com­plaints have been pinned on the ‘bro cul­ture’ at the com­pany, com­mon across many Sil­i­con Val­ley star­tups and tech gi­ants alike.

He’s not the only one de­part­ing a com­pany af­ter cul­tural is­sues. Dave McClure, founder of an­gel in­vestor 500 Star­tups, ended 2016 with a ex­ple­tive­filled rant on stage at the Web Sum­mit con­fer­ence, an­gry that Hil­lary Clin­ton lost the US elec­tion. Months later, he was forced to step down from the com­pany he cre­ated af­ter he was outed as a se­rial sex­ual ha­rasser. Sim­i­lar in­ci­dents hap­pened with in­vestor Chris Sacca and Justin Cald­beck, co-founder of ven­ture cap­i­tal fund Bi­nary Cap­i­tal.

Startup Man­u­fac­tory’s Kup­pers says, “It goes with­out say­ing that the ma­jor­ity of these tech com­pa­nies are run by white, mid­dle-class, ed­u­cated peo­ple – and male, usu­ally. These are the peo­ple who can af­ford to ac­quire the skills and have the right back­ground.”

That’s start­ing to change, ac­cord­ing to Kup­pers, par­tic­u­larly as in­no­va­tion shifts away from just Sil­i­con Val­ley to coun­tries all over the world, and as more women make their way up the chain of com­mand. “There’s a huge change com­ing,” he says.


Af­ter read­ing this list of fail­ures of sense, fru­gal­ity and de­cency, it may sound as though star­tups are an ex­er­cise in ridicu­lous­ness. Some cer­tainly are, but plenty of use­ful prod­ucts started life in this way, such as Spo­tify, Net­flix and Face­book – most tech com­pa­nies be­gan with founders and fun­ders, just bet­ter ones than those dis­cussed here.

PayPal is an­other, and when it was ac­quired by eBay for $1.5bn back in 2002, it dumped $165m into Elon Musk’s hands. He’s since set up Tesla, SpaceX and much more – surely a sign there’s some­thing to these star­tups, if it gets us to elec­tric driver­less cars and Mars. Those are bet­ter goals than not pay­ing for your own cham­pagne, af­ter all.

Kup­pers asks, “What makes a good startup? De­pends how you look at it. If it makes rev­enue or profit, the busi­ness idea is be­ing ac­cepted by the mar­ket… I think ev­ery­thing that cre­ates money and value is a good thing.” And in­vestors clearly agree.

RIGHT: El­iz­a­beth Holmes, bil­lion­aire, banned by the FDA

TOP: Just what you’ve al­ways wanted: an app that lets you say ‘Yo!’ to your friends ABOVE: Powa CEO Dan Wag­ner de­nied re­ports of cham­pagne-fu­eled May­fair par­ties RIGHT: Crowd­mix bought a ghetto blaster­shaped re­cep­tion desk be­fore lay­ing off staff

LEFT: Baguette-chuck­ing Fling founder Marco Nar­done (left) with the tar­get, his fa­ther

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