Started off with a bang, ended with a whimper: the most spectacular VC failures

The world of venture capital has seen some fantastic successes. But where there’s success, there are also resounding failures, some of which are known even to the industry outsiders.

A member of the venture club Prosto VC, investor Max Lobanov tells us about the most spectacular failures in venture capital and startups.

One of such highly reported failures was Theranos, a biotech and healthcare startup that promised to revolutionize blood testing. Theranos attracted about $900 million in investment. At its highest point, in 2015, Theranos was valued at nearly $10 billion, but in 2018 Theranos was declared bankrupt, and four years later founder Elizabeth Holmes and her deputy Ramesh Balwani, who were accused of defrauding investors, were convicted for fraud and will be out of prison in the early 2030s.

What went wrong?

The dishonesty of the founders and the team, who misled the investors, the doctors and the patients.The company’s technology, which they had promised would revolutionize medical diagnostic testing, didn’t produce accurate and reliable results. On top of that, there were management issues and lack of transparency.

The startup Katerra, also like aforementioned Theranos, sought to revolutionize the construction sector, but. announced its closure in 2021. Despite a $2 billion investment, the company never developed a viable business model, leading to bankruptcy. Katerra tried to embrace the building process to the fullest, from design to manufacturing to construction. This led to overcomplicated operations and a loss of focus. It didn’t revolutionize the industry, but the knowledge gained from hundreds of architects and engineers who saw what worked and what didn’t will certainly be useful in the future.

Teforia, a startup founded in 2014 in California, offered consumers, primarily tea drinkers, a device resembling a futuristic teapot, which, thanks to special algorithms and sensors to determine the optimal temperature, brewing time and a number of other parameters, allowed them to achieve the perfect taste of the drink. Despite technological innovations and positive feedback from users, Teforia closed in 2017. The reasons for the failure were the high cost of the device, which started from $999, the limited market penetration. and unsuccessful attempts to attract additional investments for further development and scaling of production. However, it was proving impossible for them to compete with such monsters as Nespresso.

Jawbone, once a prominent player in the fitness bracelet market, attracted investment from Sequoia Capital and Andreessen Horowitz. Despite early successes and a peak valuation of $3.2 billion in 2014, Jawbone faced serious problems that led to its decline. By 2017, the company went into liquidation due to a combination of factors such as stiff competition, failed products, and financial management. Jawbone’s devices, especially fitness trackers, failed to compete effectively with products from companies like Fitbit and Apple. In addition, Jawbone faced reliability issues as well as changes in market trends.

But it’s not just a misjudgment of market size and consumer interest, lack of funding or management mistakes that can lead to failure; sometimes unpredictable circumstances occur.

For example, an Indian startup founded in 2015 developed systems that used weather data, water levels in rivers and other bodies of water to predict floods. These systems allowed alerts to be delivered quickly through mobile apps, SMS and other communication channels. Over several rounds, the startup managed to raise about $3 million from venture capital funds and government grants. However, due to the destructive 2020 floods in the Indian state of Kerala, which were caused by heavy rains, the startup shut down due to serious damage to the company’s infrastructure and equipment, as well as the inability to rebuild without significant additional investment.

These examples underscore the importance of a comprehensive approach and careful analysis of all aspects of a business, including transparency, adequate governance, understanding of the market realities.