Failures – exposed, reflected, considered

Posts Tagged ‘kozmo.com

The 20 Worst Venture Capital Investments of All Time

leave a comment »

Continuing from the previous post on dotcom failures, below is the list of top 20 venture capital investment failures. Unsurprisingly, names such as Pets.com, Webvan and Kozmo.com appear in this list as well as among the biggest dotcom failures.

1. Amp’d Mobile: Amp’d Mobile takes the crown for money-burning, with $360 million that ended in bankruptcy. The company’s major problem was its customers’ ability to pay. While other mobile providers check for an ability to pay bills within 30 days, Amp’d let it go to 90 days and marketed to these risky customers. It has been reported that 80,000 of the company’s 175,000 customers were unable to pay their bills.

2. Procket: Networking company Procket was once one of the most highly valued telecom startups in the U.S. It had $272 million in venture-capital funding and a valuation of $1.55 billion but was ultimately sold to industry behemoth Cisco Systems Inc. for a disappointing $89 million.

3. Webvan: Webvan was a grocery-delivery business that served nine metropolitan areas. Once valued at $1.2 billion with plans to expand to 26 cities, the company went bankrupt in 2001. Despite millions in sales, the company’s demise was brought on by a money-burn that exceeded sales growth. Major purchases included $1 billion for warehouses, enterprise servers and more than 100 Aeron chairs. Additionally, it acquired HomeGrocer just a few months before going under. This fast expansion proved to be too much for Webvan. This company that once had about $800 million in venture capital ended up with $830 million in losses, with about $40 million on hand.

4. Caspian Networks: Caspian Networks, orgiginally founded as Packetcom Inc., had a number of ups and downs, including a washout in 2002; the company finally shut down in 2006. Caspian Networks fluctuated from more than $300 million in funding and 323 employees to less than 100 employees and closed doors.

5. Pets.com: This icon of the dot-com bubble died out in November of 2000, going from a listing in NASDAQ to liquidation in just nine short months. The site sold pet supplies and accessories online. Once backed with $50 million by Hummer Winblad Venture Partners, Bowman Capital, and Amazon.com Inc., Pets.com had promise and even bought out competitor Petstore.com. But in the end, its stock bottomed out at 19 cents per share. Remembered for its sock-puppet ads, the expense of its $1.2 million Super Bowl ad, as well as large infrastructure investments, proved to be too much. Pets.com’s sock puppet lives on as the icon of BarNone Inc.

6. Optiva: Optiva, a nanotech company that laminated flat-screen TV sets, had to shut down after it failed to continue to raise funding. It initially raised and ran through $41.5 million in venture capital. The problem was that it took too long to release its product, which was obsolete by the time it came to market.

7. Kozmo.com: Kozmo.com’s small-goods delivery service, while a recipient of around $250 million in investment, and popular with students and young professionals, ultimately met its end and liquidated in 2001. Its business model was criticized as unprofitable because it didn’t charge for deliveries. Kozmo.com’s demise is profiled in the documentary film e-Dreams.

8. CueCat: This much-mocked pen-sized bar-code scanner was designed to make finding information about ads easier. Instead, Digital Convergence Corp., CueCat’s creator, burned through $185 million from investors like The Coca-Cola Co. and General Electric Co. The device simply failed to catch on, and it was plagued with security problems.

9. DeNovis Inc.: DeNovis software once attempted to change the medical-claims world but ended up shutting down instead. It raised $125 million in venture capital and had 110 employees. Unfortunately, that wasn’t enough, and this promising solution simply didn’t have the cash to hang on until the software could be launched.

10. PointCast Inc.: After tens of millions of dollars in venture capital and a $400 million buy offer, PointCast was finally sold for $7 million. It was originally touted as the next big thing, but failed to live up to its hype when its software and downloads irritated customers.

The remaining ten are here.

Loads of money poured in; results – catastrophic. With less capital available, startups and entrepreneurs must still carefully consider money sources. There is sometimes more headache and problems coming with money than one would anticipate or would like to have. As an unavoidable consequence, the current economic and financial crisis makes angel investors and venture capitalists more careful and vigilant in what they invest and pushes them to introduce tighter controls and additional transparency, having in mind the final objective of (an even more rapid) sell or IPO for a startup.

The list was compiled in 2007 and will certainly get new entrants by the end of this or the beginning of next year.

Top 10 dotcom flops

with 20 comments

Starting from year 1995, the world got an extra doze of anxiety. All approaches to millennia are debates between “the roosters and the owls.” Conspiracy theories started to flourish. Anticipation peaked. Some even predicted an inevitable doom and came up with end of the world theories. At the same time though many venture capitalists and investors started zealously investing large amounts of money in all kinds of startups and pouring dollars into pockets of geeeky college grads with barely decent business plans and fairytale ideas. This era (1995-2001) marked the rise and fall of many startups, followed by colossal losses whereby an estimated $5 trillion in paper wealth on Nasdaq were wiped out.

Below is the list of most spectacular and significant of those startups (and their brief stories), which are singled out for the accompanying hype, large sums of burnt money or for manner of their failure.

Webvan (1999-2001)

A core lesson from the dot-com boom is that even if you have a good idea, it’s best not to grow too fast too soon. But online grocer Webvan was the poster child for doing just that, making the celebrated company our number one dot-com flop. In a mere 18 months, it raised $375 million in an IPO, expanded from the San Francisco Bay Area to eight U.S. cities, and built a gigantic infrastructure from the ground up (including a $1 billion order for a group of high-tech warehouses). Webvan came to be worth $1.2 billion (or $30 per share at its peak), and it touted a 26-city expansion plan. But considering that the grocery business has razor-thin margins to begin with, it was never able to attract enough customers to justify its spending spree. The company closed in July 2001, putting 2,000 out of work and leaving San Francisco’s new ballpark with a Webvan cup holder at every seat.

Pets.com (1998-2000)

Another important dot-com lesson was that advertising, no matter how clever, cannot save you. Take online pet-supply store Pets.com. Its talking sock puppet mascot became so popular that it appeared in a multimillion-dollar Super Bowl commercial and as a balloon in the Macy’s Thanksgiving Day Parade. But as cute–or possibly annoying–as the sock puppet was, Pets.com was never able to give pet owners a compelling reason to buy supplies online. After they ordered kitty litter, a customer had to wait a few days to actually get it. And let’s face it, when you need kitty litter, you need kitty litter. Moreover, because the company had to undercharge for shipping costs to attract customers, it actually lost money on most of the items it sold. Amazon.com-backed Pets.com raised $82.5 million in an IPO in February 2000 before collapsing nine months later.

Kozmo.com (1998-2001)

The shining example of a good idea gone bad, online store and delivery service Kozmo.com made it on our list of the top 10 tech we miss. For urbanites, Kozmo.com was cool and convenient. You could order a wide variety of products, from movies to snack food, and get them delivered to your door for free within an hour. It was the perfect antidote to a rainy night, but Kozmo learned too late that its primary attraction of free delivery was also its undoing. After expanding to seven cities, it was clear that it cost too much to deliver a DVD and a pack of gum. Kozmo eventually initiated a $10 minimum charge, but that didn’t stop it from closing in March 2001 and laying off 1,100 employees. Though it never had an IPO (one was planned), Kozmo raised about $280 million and even secured a $150 million promotion deal with Starbucks.

Flooz.com (1998-2001)

For every good dot-com idea, there are a handful of really terrible ideas. Flooz.com was a perfect example of a “what the heck were they thinking?” business. Pushed by Jumping Jack Flash star and perennial Hollywood Squares center square Whoopi Goldberg, Flooz was meant to be online currency that would serve as an alternative to credit cards. After buying a certain amount of Flooz, you could then use it at a number of retail partners. While the concept is similar to a merchant’s gift card, at least gift cards are tangible items that are backed by the merchant and not a third party. It boggles the mind why anyone would rather use an “online currency” than an actual credit card, but that didn’t stop Flooz from raising a staggering $35 million from investors and signing up retail giants such as Tower Records, Barnes & Noble, and Restoration Hardware. Flooz went bankrupt in August 2001 along with its competitor Beenz.com.

eToys.com (1997-2001)

eToys is now back in business, yet its original incarnation is another classic boom-to-bust story. The company raised $166 million in a May 1999 IPO, but in the course of 16 months, its stock went from a high of $84 per share in October 1999 to a low of just 9 cents per share in February 2001. Much like Pets.com, eToys spent millions on advertising, marketing, and technology and battled a host of competitors. And like many of its failed brethren, all that spending outweighed the company’s income, and investors quickly jumped ship. eToys closed in March 2001, but after being owned for a period by KayBee Toys, it’s now back for a second run.

The rest of the five remaining flops can be found here (among which boo.com, the biggest European dotcom failure, about which there is a longer account here). Let us not forget that the huge losses of the dotcom bust must not make us loose sight of the fact that two US corporations (Enron $80+ billion and WorldCom $74+ billion in 2000/2001 alone) probably account for more direct losses than all the dotcom spending.

Let us also remember that not every startup was a looser. Indeed few companies such as Google and Amazon were also created during that period and came out of it healthier and stronger than they or the industry experts could have anticipated.

Both Google and Amazon are still going strong, notwithstanding the recent economic and financial crisis.

Follow

Get every new post delivered to your Inbox.

Join 651 other followers