Silicon Valley loves failure, but these companies cost investors more than they bargained for. These startup fails show that money doesn’t guarantee success.
Failure is accepted, if not encouraged, in Silicon Valley.
In order to learn what works and what doesn’t, first you must fall flat on your face. And yet, the sheer number of innovative companies that fail to turn their vision into success is shocking.
In fact, 90% of new startups fail.
According to tech investor Mike Maples, approximately 10,000 startups are given funding by angel investors each year. 1,500 of them are then given Series A funding. Just 80 of those companies will go on to achieve success, while just 12 will achieve a billion dollar valuation.
You would assume that reaching the billion dollar mark comes with a safety blanket that guarantees the company a long and comfortable future. Yet, that isn’t the case.
Many of these companies, known as ‘Unicorn startups’, have yet to officially launch, lack a solid user base or are operating at a loss. Investors are simply speculating on the future of the idea, which causes the value to climb prematurely.
However, one bad business decision, the emergence of a competitor service or a lack of user interest can cause a unicorn’s value to plummet unexpectedly.
3 startup fails that cost investors billions
Investors lose billions to startup fails each year. Thousands of companies lose their place in the business world, but these three companies are some of those that suffered the worst:
Wearable tech company Jawbone went out of business in 2017, almost two decades after it formed.
Despite success in the consumer electronics market, the company’s decision to move into the wearables market saw their empire come crashing down. Just a few years ago, Jawbone was a $3.2 billion company, but its value now stands at $0.
Many feel that the company’s fall from grace came as a result of overfunding in Silicon Valley. Jawbone was force-fed capital that it didn’t need and its inflated value ultimately convinced them that they could challenge in a new market.
As their current situation shows, expansion isn’t always the best move.
No tech startup has raised more Serie A funding than the $76 million that Powa received in 2013. That was just the first step on the company’s path to becoming a multi-billion dollar company.
Despite reaching a value of £2.7 billion, the e-commerce service provider went bankrupt within three years.
Powa’s decline wasn’t an issue of poor product or lack of interest. Its main product, PowaTag, an app that allowed shoppers to scan an item, view details and purchase it through their smartphones, garnered lots of interest. Instead, it was poor control of finances that led to Powa Technologies collapse in 2016.
The company had just £200,000 left in the bank by the end, and very little to show for it. Rumours spread by former employees suggested that Wagner was to blame, having splashed out on extravagant parties and luxury travel.
Theranos hasn’t quite taken its last breath, but the medical tech company has lost its unicorn status, having seen its value plummet from $9 million down to just $800 million between 2014 and 2016.
The Silicon Valley startup was founded by Stanford student Elizabeth Holmes in 2003. The company started out creating wearable patches which adjust drug dosages and notify doctors of changes in the patient’s blood.
Set to become the future of blood testing, investors rushed to hand the company their money. However, despite a private offering in 2014 valuing the company at $9 billion, its stock would soon fall.
Allegations of inaccurate tests saw the company come under investigation form a number of federal agencies. Unsurprisingly, this caused Theranos’ value to drop considerably.