Learnings From 20 Failed Seed Startups Uncovered By VC

Theranos, Beepi, Juicero, Blippar, Jawbone, Wonga — if you are reading this blog post, there is a good chance that you enjoy your career in tech and know what is common about this list of weird names above — these are some of the biggest startup failures in history. One can easily find profound research papers and articles online about the reasons behind the biggest startup flameouts, including the ones above. Also, the Internet is full of shallow stories and “insights” about typical reasons why startups fail in general. While at Leta Capital we invest in Seed and Series A startups, I was searching on the web for some good exemplary stories about startup failures at Seed and Series A stages. Surprisingly, all I could find was generic, obvious and pretty much useless reasons for startup failure such as “no market need”, “not the right team”, “ran out of cash” and other blah-blah-blah. In fact, when one fails a startup at a relatively early stage (pre-Seed, Seed or Series A), they wouldn’t shout out about it publicly, that is why readers won’t find much online.

“…[while searching for exemplary reasons behind Seed startup failures] all I could find was generic, obvious and useless notes [..] such as “no market need”, “not the right team”, “ran out of cash” and other blah-blah-blah.”

One of the major advantages of being a VC is that we can see the ups and downs of each startup from the inside, as well as respective reasons behind every success and every failure. As a result, such accumulated knowledge becomes priceless, is kept strictly private by VCs and is mainly shared internally with portfolio companies.

That is why with this blog post I decided to draw the curtain open a little bit and share 20 cases of real early-stage startups which I have met throughout my career in VC and who eventually shut down or became zombie. In each case, I included some background information (case), outcome and learnings of why these startups failed. Due to obvious privacy & ethical concerns, I chose not to share real companies names but mentioned their respective sector and business model.

I hope that founders of pre-Seed, Seed and Series A tech startups will find this blog post most useful, as well as VC peers and other interested parties.

Case 1. The company prematurely hired sales reps before reaching p/m fit. Founders always need to work with early adopters directly

Case 2. Fully self-served solutions are rarely successful in enterprise environments

Case 3. Technical founders typically require external sales resources

Case 4. Corporate backgrounds of founders can sometimes be toxic when running a startup, specifically when reproducing processes and functions.

Case 5. Chasing wrong investors and putting all efforts into fundraising is always harmful for early-stage businesses.

Case 6. Technical debt kills most Seed startups mainly via inability to find Series A investor who’d be willing to allocate budget on significant re-engineering.

Case 7. It’s better to have 10 loyal users, rather than 100 lukewarm ones, good to remember especially when chasing required metrics for Series A.

Case 8. Don’t be afraid of burning investor’s cash. It’s better to burn it fast and get results faster no matter whether they are positive or not.

Case 9. Former consultants as startup founders are oftentimes over-intellectualizing their pitch.

Case 10. Customizing product for each b2b customer will limit the startup’s upside significantly and overcomplicate fundraising efforts.

Case 11. Be mindful when hiring former corporate top managers for both equity or advisory roles.

Case 12. PR success shall never be confused with sustainable operations results.

Case 13. At early stages, startups should always set realistic down to earth targets and no illusions about their capabilities.

Case 14. It doesn’t sound like a healthy internal set up when founders are afraid of employees or co-founders to take over the company from them.

Case 15. Importance of a founder’s ability to transform into the CEO role at later stages of the business.

Case 16. Leaving ops behind at early-stages by founders is inadmissible in any case.

Case 17. Eternal hurdles of startups trying to sell to corporates.

Case 18. Always aim at hiring startup-experienced engineers and make sure to watch their motivation.

Case 19. Be mindful when planning tech stack for the startup and don’t be trapped in hyped technologies.

Case 20. Outsourced development for core tech seems cheap immediately but always result in future problems of syncing with in-house team.

At Leta Capital, we invest in most disruptive post-revenue tech startups at late Seed and Series A. Please send us your pitch to info@leta.vc