Fraud, lawsuits and bad products among the reasons behind the most expensive startup flameouts ever, new research from CB Insights reveals
Work in the startup sector for long enough and someone will eventually tell you that nine out of ten new businesses fail. And while it may be disheartening to hear, learning why enterprises go belly up can help you protect your own business. Luckily new research offers a master class on the topic, having investigated the 111 most expensive startup collapses of all time.
Having scanned its own data, CB Insights, the venture-capital database, identified the costliest enterprises that either went bust or had an undesirable exit. Claiming the top spot is the failed Silicon Valley solar-panel startup Solyndra. Having raised $1.22bn, the company kicked the bucket in 2011 after the price of polysilicon – the material most of its competitors used – dropped by 89%, leaving the startup unable to compete. But it isn’t just American businesses that have spectacularly bitten the dust: British tech ventures also feature on the list, with the would-be unicorn Powa Technologies being the most costly, having raised $176.3m in equity and closing shop with at least $50m of debt.
As is to be expected, many of the collapses were due to bad product-market fit, businesses running out of money or just being outmanoeuvred by competitors as in the case of Karhoo and Uber. Others like Better Place, the electric-car company, were unable to generate sustainable revenues. Despite having raised $675.3m – making it the second most expensive failure on the list – and often being touted as the future of the car industry, the company filed for bankruptcy in 2013, at which point it was revealed that its finances had been mismanaged and that it had failed to acquire enough market penetration. In the end, Better Place sold less than 1,500 cars.
However, a number of businesses collapsed for more dramatic reasons. Some – like Veoh Networks and Homejoy – went down in a flurry of costly lawsuits, while others burned out amidst fraud allegations. Perhaps the most bizarre case on the list is Pixelon, the online video-distribution startup. The business’s fall from grace began when it was revealed that the founder and former chairman Michael Fenne was actually David Kim Stanley: a convicted felon who had skipped bail and was still on Virginia’s most-wanted list. Following his departure, it became clear that the company had misrepresented its technologies.
The stories behind the implosion of these startups – and the other cautionary tales on the full list – should serve as a warning for any budding entrepreneur.