5 startups that raised more than US$500 M and failed

These 5 startups seemed to touch the sky with their hands: good ideas, investors who trusted and more than 500 million in investment. They failed and this note explains the reasons.

Your startup may fail after raising hundreds of millions of dollars. This can be a scary thought. But it is an important fact to reflect on so as not to get lost in the hype that surrounds you and your business.

Everyone is looking for the next big thing. Who wouldn’t want to join Amazon in the year 2000 and experience exponential growth? The adrenaline of billions can blind investors and founders alike. But, as they say, the faster you climb, the harder the possible fall.

Studying how some startups made their millions or, in some cases, billions is a good habit. However, to avoid future headaches, don’t underestimate the power of doing the opposite and taking the time to learn how others failed.

The graveyard of failed startups is overflowing and you can learn from your mistakes. Below are five of the biggest ones that crashed and burned despite raising $500M or more.

Founder Shai Agassi had a bold ambition to dominate the electric charging market. Short battery life had been the biggest obstacle holding back the mass adoption of electric cars. Increased capacity seemed many years away. Agassi’s brilliant idea was to make it easy to change dead batteries for new ones in less than 3 minutes.

Ambition can be very attractive. But it can also be a great weakness. They wanted their battery changing stations to be equal to the number of service stations. Can you imagine the cost of this? It seems Better Place couldn’t either. Startup costs skyrocketed even in the relatively small test markets of Israel and Denmark. The revenue aspect was even worse, as only one car, the Renault Fluence, was equipped with a removable battery. When the stations were installed, there were not enough drivers to keep them afloat.

The strategy could have been smart in the long term with more support. However, Tesla and other rivals invested in reducing charging times and increasing capacity. This made Better Place’s investment in infrastructure obsolete during testing.

The lesson:
When network costs are high, you have to be sure that a better alternative model is many years away. As Peter Thiel says: “It’s much better to be the last one to move.”

In 2019, the global wearables market was worth $32 billion. In 2011, it seemed certain that Jawbone would be a major player in the market. He had been in the market for a decade and had a solid track record of innovation.

However, the fitness wearable became its future. They said everything they needed to say and focused on stylish and fashionable trackers.

However, Apple and Fitbit have won the race and Jawbone has gone under. Problems began early, as his big release, “Up,” had a fundamental flaw. It was a fitness tracker that shorted out when the user sweated. This led to a massive recall of the product. They launched more products, but defects destroyed their income. They needed to raise more money to deal with this situation. They succeeded, but the conditions made things “very, very complicated,” according to Hosain Rahman, the former CEO.

Jawbone became too good at raising money and not skilled enough at creating products. Its focus on style over substance lost out to its competitors’ innovative products. They only had 2.8% of the market share in 2016.

The lesson:
Don’t focus so much on being fancy because it makes you forget what your customers want.

When an idea seems too good to be true, sometimes it is. Arrivo was designing an above-ground hyperloop transport. Yes, he read that right. If you’ve ever seen Futurama, you’ll know exactly what they intended. Imagine people’s cars being thrown along highways at hundreds of miles per hour.

Arrivo’s problem was engineering. They never managed to build a test track or prove the concept. Why did they get funding? The answer lies in Brogan BamBrogan, who was the chief engineer at SpaceX. His remarkable resume made people willing to believe in his vision. They may have had the ability to create the hyperloop, but they needed a lot of money to test it and political acceptance. For a company of 30 people, he was left without resources.

Virgin Hyperloop One and Hyperloop Transportation Technologies, Arrivo’s competitors, have far more resources. Smaller competitors have explicit backing from governments.

The lesson:
If you have an idea to change the world you need to have the resources and political support to do it.

Few industries could have more growth potential than clean technology. The world has opened its eyes to the dangers of non-renewable energies and is looking for substitutes for an industry that represents 3.8% of the world economy. Solyndra seemed like a great bet with its innovative solar panels. Supposedly, its cylindrical panels were the ones that converted energy best.

Some believe his reputation was built on a web of lies. They are being investigated by the US government for using false records to obtain a $535 million grant. However, what bankrupted the company had nothing to do with this. Silicon prices plummeted and reduced the cost of building solar panels. Now Solyndra could be undervalued because their resource needs were different and they weren’t so lucky.

Now the solar panel market is dominated by low-cost Chinese manufacturers.

Solyndra’s technology was not good enough to justify the high long-term valuation.

The lesson:
Don’t lie to the government because it’s only a matter of time before they find out. If Solyndra had maintained transparency, it might have been able to increase its costs more slowly and pivot its product if necessary.

And finally, the biggest failure on this list, that of the startup LeSports, based in Hong Kong, which planned to broadcast sports throughout China. Jia Yueting, the CEO, was able to quickly raise money through his existing business connections.

Its business model was based on obtaining exclusive rights to the biggest events. They had success at some level with Formula 1, the English Premier League and the NBA. However, they had nothing that made them stand out except these rights. They quickly realized they didn’t have innovative technologies or a game-changing distribution strategy.

LeSports had a classic case of the winner’s curse. They got these contracts by paying much more than their rivals were willing to pay. Rights revenue was a small fraction of its costs. The Asian Football Confederation took over the rights to LeSports when they couldn’t keep up with payments and they were never recovered.

The lesson:
Don’t spend more on something than your rivals if you have no other competitive advantage.

We have seen 5 massive startup failures. If you are thinking about getting financing now, you should know that money does not guarantee success. Don’t settle and focus on your fundamentals. It’s easy to get lost in all the hype or excitement of getting money.

Focus on the profits you can realistically generate rather than the amount of money you can potentially raise