Failures and breakthroughs – exposed, reflected, considered

The 20 Worst Venture Capital Investments of All Time

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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.

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