Failures and breakthroughs – exposed, reflected, considered

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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, Webvan and 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. 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 Inc., had promise and even bought out competitor 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.’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.’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.’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

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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. (1998-2000)

Another important dot-com lesson was that advertising, no matter how clever, cannot save you. Take online pet-supply store 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, 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. raised $82.5 million in an IPO in February 2000 before collapsing nine months later. (1998-2001)

The shining example of a good idea gone bad, online store and delivery service made it on our list of the top 10 tech we miss. For urbanites, 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. (1998-2001)

For every good dot-com idea, there are a handful of really terrible ideas. 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 (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, 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, 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.

Some historic fails of science and technology

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Historically, science and technology have gone along many routes which turned out to be dead-ends.

Science has many discredited theories and obsolete paradigms such as alchemy, phlogiston, universal ether, and more.  They failed the reality test and were cast aside, occasionally turning up in fantasy stories and crackpot websites. Some scientists use science to explain/interpret social and cultural phenomena. Sam Harris, for example, says (completely ignoring the spiritual, cultural and social aspects) the religion “is indeed failed science” and expresses hope that information, education and science will rectify this situation. In the modern world  even  renowned scientists are prone to making claims and predictions, which cannot be substantiated. An interesting case in point is Paul Ehrlich, a world-renowned entomologist whose failed predictions about environment (for example “There is no evidence that global warming is real“) are still resoundingly discrediting relevant scientific research and available empirical data. There are even cases (controversy surrounding discovery of element 118) when scientists deliberately fabricate fake data to support their theories and claims.

Technology has a bit more wiggle room but is still full of false/failed predictions and intentions.  Some technologies were perfectly viable from an engineering standpoint, but either couldn’t compete economically or never really had a market.  The canonical example is airships.  With abandoned technologies there’s always the suspicion that if things had turned out differently we might be driving atomic cars or be regular tourists on the spacecraft Cycler commuting between Mars and the Earth or some other high-end, futuristic sci-fi-inspired gig. Douglas Self‘s Museum of Retro Technology contains information on dozens of devices, which existed, but never became part of everyday life.

Failed technologies are different from completely bogus technology.  We’ll never get power from a Keely Motor and we will most probably be unable to  make mainstream steam-powered airplanes because they either had high costs related to manufacturing or unprepared markets or could simply not compete with more conventional designs.

But all these false roads and blank directions were not taken in vain.  If you take a look at major inventions and discoveries in science and technology you will see that most, if not all, happened by merry happenstance (radioactivity theory by Marie Curie), unanticipated development (Arpanet and Internet) or in the course of pursuing a plainly different objective (serendipitous case of discovering penicillin by Alexander Fleming).

Story of Iridium

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It all started one day in 1985 with a vision and commitment of one of Motorola’s brightest engineers, whose wife complained that she was unable to reach clients via her cell phone from the Bahamas. He envisioned a technology that would allow effortless communication from and to any corner of the earth. His name was Bary Bertiger. Bertiger submitted his idea to his superiors (who had rejected the concept, it was no less than Robert Galvin, Motorola’s chairman at the time, who gave Bertiger approval to go ahead with the project), gathered a star team of engineers and businessmen and started working on it. His idea was to put up a network of low orbiting satellites covering the entire orbit of the earth and linking them with mesh technology for routing calls to and from any point in the world.

Work on the project started in 1987. While satellite phones were available in the 1980s, they had limited global coverage and, owing to the height the satellites orbited, the transmission and receiving delay made a conversation sound as though speaking down a long tunnel. Motorola thought that the world was ready for something better, and proposed creating a massive network of satellites that would provide global coverage. These satellites would orbit at a much lower altitude than their competitors and so the quality of transmissions would improve dramatically. The initial cost of the project was estimated to be over A$7 billion and required to put 77 satellites into low earth orbit. Because of this number of satellites , the project was dubbed Iridium after element 77 in the periodic table of Mendeleev.

However, cost saving issues resulted in a proposed redesign of the project, reducing the number of satellites to 66 only. The marketers kept the name Iridium, instead of changing it to element 66 — dysprosium (from Greek “hard to get”).

The launch of satellites started early in 1997 and was completed by 1998 (from launching pads in Kazakhstan, China and America).

Iridium services commenced from December 1998. “Iridium’s core identity was defined by its transcendence of national borders, a structure that is particularly post-Cold War,” Wired magazine gushed in its October 1998 cover story. “Iridium may well serve as a first model of the 21st-century corporation.”

Unfortunately, despite the brilliance of the technology and the team behind its design and marketing, expectations had changed since 1987. People expected their phone to be lightweight, usable inside buildings and the calls to be relatively cheap. Iridium phones were heavy (not suitable for carrying in a pocket) — as they needed powerful batteries — and they didn’t work inside buildings, costing around A$10 per minute. In parallel, the demand, anticipated by the original Iridium creators, was slowly being met by a advent of portable mobile phones. 1G cellular telecoms have been launched by NET in Japan in 1979. However, the dawn of mobile phones came with the launch of 2G systems such as GSM in 1990s and still ubiquitous around the world. By then, the market for satellite phones was estimated at 2-3% of the mobile-phone market and there were other companies (Globalstar, ICO, and Ellipso) are chasing the same (satellite) customers.

Less than a year later, Wired News backtracked, saying, “After losing nearly US$1 billion in two disastrous quarters, the engineering marvel is in danger of becoming the Ford Edsel of the sky.”

At the cost of construction of A$7 billion, Iridium needed over one million subscribers to break even. By mid 1999 it had gained 55,000 subscribers and was rapidly running out of money. In August 1999, the Iridium was bankrupt and subscribers found themselves without a dial tone. There were several attempts at selling Iridium, but no company could afford it.

By early 2000 the only employees left at Iridium were those employed to ‘de-orbit’ the satellites (during the estimated period of two years).

In 2000, the company was taken over by Iridium Satellite LLC (for A$35 million), contracted by US Defence Department. In 2007, Iridium Satellite LLC announced that it would be launching new satellites to attract partners, providing services beyond voice calling such as a next-generation global positioning system, environmental monitoring and satellite photography, becoming fully operational by 2016.

It currently has 280,000 subscribers and counting, despite the fact that the phone requires a line-of-sight with a satellite and thus can’t work inside buildings.

Time will tell if its current incarnation is more successful than its first.

Written by Hayk

October 1, 2008 at 10:00 am

Murphy’s law of failure

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Murphy’s Law (“If anything can go wrong, it will“) was born at Edwards Air Force Base in 1949 at North Base.

It was named after Capt. Edward Murphy (born in 1918), an engineer working on Air Force Project MX981, a project designed to see how much sudden deceleration a person/humanoid can stand in a crash with subsequent tests performed by medical doctor John P. Stapp, then an Air Force captain. Featured on the cover of Time magazine in the 1950’s, Stapp became known as the “Fastest Man on Earth” for his G-force experiments, which involved the use of rocket sleds. He was a famous researcher who helped develop restraint systems including automobile seatbelts.

Murphy was engaged in supporting this research using high speed centrifuges to generate G-forces. One day, Murphy’s assistant wired the harness, and a trial was run using a chimpanzee. The sensors provided a zero reading, however; it became apparent that they had been installed incorrectly, with each sensor wired backwards. It was at this point that a disgusted Murphy cursed the technician responsible and said, “If there is any way to do it wrong, he’ll find it,” despite having the possibility to calibrate and test the sensor installation prior to the test proper, which he declined, not getting along well with the project team.

The contractor’s project manager, present at the time when Murphy told the phrase, kept a list of “laws” and added this one, which he called Murphy’s Law.

While the origins of the law are still debated, everyone agreed that Stapp played a critical role in popularizing Murphy’s Law. After the incident, he gave a press conference during which he said that their good safety record on the project was due to a firm belief in Murphy’s Law and in the necessity to try and circumvent it. Aerospace manufacturers picked it up and used it widely in their ads during the next few months, and soon it was being quoted in many news and magazine articles.

Murphy’s Law was born .

One dark evening in 1990, Murphy’s car ran out of gas. As he hitchhiked to a gas station, while facing traffic, he was struck from behind by a British tourist who was driving on the wrong side of the road.

A variation of the original Murphy law favored among hackers is a takeoff on the second law of thermodynamics: The perversity of the Universe tends towards a maximum.

P.S. Stapp had a paradox of his own, Stapp’s Ironical Paradox, which says, “The universal aptitude for ineptitude makes any human accomplishment an incredible miracle.”

Sources: Murphy’s Laws site; The Desert Wings, March 3, 1978; Annals of Improbable Research (AIR)

Written by Hayk

September 21, 2008 at 10:53 am

The first PDA: case Apple Newton

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This story is about the precursor of modern PDAs.

The Newton project was not originally intended to produce a personal digital assistant (PDA). The PDA category did not exist for most of Newton’s genesis (however earlier devices like the Psion Organiser and Sharp Wizard had the functionality to be considered PDAs), and the “personal digital assistant” term itself was coined relatively late in the development cycle by Apple‘s then-CEO John Sculley on 7th January 1992, the driving force behind the project. Newton was intended to be a complete reinvention of personal computing.

To clarify, the official name of Apple’s product was the MessagePad; Newton was really the name of the operating system. But Newton captured the public’s imagination, so that’s what the device was popularly called.

One of the original motivating factors for the design was known as the “Architect Scenario”, in which Newton’s designers imagined a residential architect working quickly with a client to sketch and interactively modify a simple two-dimensional home plan.

The end result was a however what became a template for future PDAs. Its initial version rolled off with a variety of software to aid in personal data organization and management.

This included applications as Notes, Names, and Dates, as well as a variety of productivity tools such as a calculator (metric conversions, currency conversions), time-zone maps, and a handwriting recognition, which worked even with the display rotated.

In 1993 before its release, Apple launched a marketing campaign of Newton centered on its allegedly unprecedented handwriting recognition.

When it first appeared in shops, Newton however became a disappointment. It was big (not suitable for pocket), pricy (about $700 for the first model and as much as $1,000 for later), new (no market familiarity) and had software problems (notably, its handwriting recognition was fairly inaccurate and was skewered in the Doonesbury comic strips).

PDAs would remain a niche product until Palm, Inc.‘s (by ex-Apple employee Donna Dubinsky) Palm Pilot emerged shortly before the Newton was discontinued in 1998. The cheaper Palm Pilot was released in 1995 and became a runaway success. It was smaller, thinner and sold at lower cost. It had an excellent PC synchronization and more robust handwriting recognition (Graffiti) system—which had been available first as a software package for the Newton—managed to restore the viability of the PDA market after Newton’s commercial failure.

Written by Hayk

September 17, 2008 at 6:22 pm

The Vasa sinking

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The Swedish flagship Vasa‘s first and final sailing in August 1628 left fine fodder for future management consultants – an all-purpose cautionary tale of an overbearing but technically clueless boss pushing through his pet project. King Gustavus II Adolphus, striving to make Sweden a superpower (in his bid to make the Baltic fleet join the Thirty Year War), had wanted four new warships built fast. Workmen were already laying the Vasa’s keel when the king ordered its length extended. His seasoned master shipwright, fearing to challenge the famously hot-tempered king, went ahead. The shipwright then took ill, directed the project as best he could from his sickbed and died before it was finished. His inexperienced assistant then took over, and the king ordered a second gun deck, possibly spurred by false reports that rival Denmark was building a ship with double gun decks. The result was the most lavishly appointed and heavily armed warship of its day, but one too long and too tall for its beam and ballast – a matchless array of features on an unstable platform. When the stan dard stability test of the day – 30 sailors running from side to side trying to rock the boat–tilted the Vasa perilously, the test was canceled and the ship readied for launch.

Despite an obvious lack of stability in port, she was allowed to set sail and foundered a few minutes later when she first encountered a wind stronger than a breeze. She drowned.

Vasa was located again in the late 1950s, in a busy shipping lane just outside the Stockholm harbour. She was salvaged with a largely intact hull on April 24, 1961. During recovery thousands of artifacts and the remains of at least few dozen people were found in and around the hull of the Vasa by marine archaeologists. The artifacts and the ship itself have provided historians with invaluable insight into details of naval warfare, shipbuilding techniques and everyday life in early 17th-century Sweden.

The ship is currently one of Sweden’s most popular tourist attractions.

Written by Hayk

September 10, 2008 at 7:34 pm