- Statistics show nine out of 10 startups end up failing – one of the top reasons being lack of cash. So it is no wonder when a company goes bankrupt, its founder or founders may, too.
- In Silicon Valley, it seems failure is a rite of passage. Medium blog posts by founders detailing why a company is folding and how it is best for the “community” have become all too common.
- Many failed CEOs of one startup may go on to found bigger and better companies – but some don’t.
- Here are seven tech executives who lost millions, along with the companies they helped build.
- Visit Business Insider’s homepage for more stories.
Capitalism can be an ugly beast.
According to statistics, nine out of 10 startups are guaranteed to fail – and most of the time it’s because a company simply spent all of its money. This means that not only do companies lose millions of dollars, but so do their founders. When companies go broke, the bank accounts and net worths of CEOs typically also take a drastic hit.
Silicon Valley isn’t a place where entrepreneurs are down for long. Failure is seen almost as a rite of passage in some cases – but in others, failure can mean years-long court battles and the possibility of bankruptcy or criminal charges for misleading shareholders.
The most prominent, widely covered, and dramatized downfall may be that of founder and former CEO of Theranos Elizabeth Holmes, who faces criminal fraud charges alleging she misled not only investors, but policy makers about the capability of her company’s blood-testing technologies.
Another example, but with a happier ending, is Napster – the popular, early-aughts music-sharing software, brought down in part by a lawsuit facilitated by metal band Metallica. Though Napster didn’t survive, founders Sean Parker and Shawn Fanning recovered – Parker became the first president of Facebook and Fanning has since invested in a variety of startups himself.
Failure in the tech industry cannot be thwarted – the risk of losing everything seems to be part of the game.
Here’s the tech execs who lost millions and the companies they built.
By now, Elizabeth Holmes, founder and former CEO of blood-testing company Theranos, is a household name. Holmes was able to secure nearly $US1 billion in funding, notably from investors like Rupert Murdoch and US Education Secretary Betsy DeVos, before questions about the technology and fraud charges against Holmes caused Theranos to shut down.
Theranos was founded in 2003 when Holmes was 19 and attending Stanford University. By 2015, Theranos had a $US9 billion valuation.
But a year later, Wall Street Journal reporter John Carreyrou published a story detailing how the company was operating at a limited capacity and had been generating false and unreliable results for patients. By the end of 2017, Theranos was drowning – the company had no money and its board members were leaving.
Last September, Theranos laid off its workforce and Holmes faced charges of wire fraud. The company shut down just days later for good. Holmes, who Forbes once estimated had a net worth of $US4.5 billion, now has an estimated net worth of $US0.
Antoine Balaresque and Henry Bradlow founded drone startup Lily Robotics in 2013. By 2015, Lily Robotics had over $US15 million in funding and nearly $US35 million in pre-sales thanks to a viral video showing the “drone” in action. But just two years later, Lily Robotics shut down, filed for bankruptcy, and was raided by federal agents. The much-sought-after drone? It reportedly never existed.
Lily Robotics pitched itself as a free-following, video-capturing, autonomous drone company. The company captured the gaze of investors like the Winklevoss twins (who famously sued Mark Zuckerberg over Facebook) and firms like Spark Capital (known for funding Twitter and Slack).
Cofounder Balaresque wrote in an email obtained by San Francisco District Attorney that the famed footage of a Lily drone following skiers and kayakers while they trekked through mountains and rivers was shot using a GoPro mounted on a $US2,000 DJI Inspire drone. And according to bankruptcy paperwork, Lily was burning through roughly $US1 million a month, while customers anxiously awaited their drones. The company filed for bankruptcy, and said in 2017 it plans to refund customers, but it’s not clear if anyone has received a refund yet.
Business Insider tried contacting Balaresque and Bradlow, but they did not respond to requests for comment. According to LinkedIn, Bradlow is now a product manager at e-scooter company Lime.
In its heyday, circa 2011, Sidecar was considered a ride-share pioneer, beating even Uber and Lyft to launch. With just a little over $US35 million in funding, though, Sidecar cofounder and former CEO Sunil Paul said the company just could not compete with Uber, which raised over $US6.6 billion.
Sidecar eventually shut down operations in 2015, yet was able to sell its assets to General Motors the following year.
“Our vision is to reinvent transportation and we’ve achieved that with ridesharing and deliveries. It is, however, a bittersweet victory,” Paul wrote in 2015. He largely blamed Uber’s “aggressive” tactics and “anti-competitive behaviour” for Sidecar’s defeat, even going as far to file a lawsuit against the company last year.
Paul did not immediately respond to request for comment made by Business Insider, but according to his LinkedIn profile, he is now the founder of Spring Ventures, a venture capital firm.
Napster was founded in 1999 by then-teens Sean Parker and Shawn Fanning as a free music-sharing and file-swapping service. But after several high-profile lawsuits, Napster folded and agreed to pay $US26 million to publishers.
By 2002, Wired called Napster “the company that launched the most innovative Internet program.”
But Napster was ultimately and very publicly brought down by a multitude of widely-covered lawsuits, including one facilitated by metal band Metallica, crushing the hearts of its 57 million users in the process.
This colossal failure did not keep the two software engineers down for long, however. Parker went on to become the first president of Facebook (though ultimately left after a scandal) and Fanning has gotten into investing.
Jawbone Health, a wearable health and fitness tracker, raised about $US950 million. Jawbone spent nearly $US1 billion over the course of a decade, but was ultimately unable to produce a wearable that could compete with rival Fitbit.
Jawbone founder and CEO Hosain Rahman filed for Chapter 7 bankruptcy for the company in 2017 with plans to sell some of its assets. J.P. Morgan even sued Rahman alleging he defaulted on loans, but the two parties later settled.
Reuters described Jawbone as “the second largest failure among venture-backed companies.”
None of this deterred Rahman’s ability to raise millions of dollars, however – he was able to raise over $US65 million for a new company this year.
Rahman did not immediately respond to a request for comment.
The meteoric rise of Aereo, the television/video-streaming startup spearheaded by Chet Kanojia, was shot down by the US Supreme Court in 2014 after the court ruled it violated copyright law in 2014, just two years after it was founded. Five months later, Kanojia and Aereo ended up in court yet again — but this time to file for bankruptcy, according to a blog post written by Kanojia himself, in order to “maximise the value of [the] business and assets.”
However, Silicon Valley isn’t a place where failed entrepreneurs are down for long. In 2016, Kanojia announced his plan to disrupt the broadband industry by providing cheap, fast internet to customers with Boston-based startup Starry.
Business Insider was unable to immediately reach Kanojia for comment.
The story of taxi-hailing app Karhoo is one that can be told in five words: It ran out of money. Just 18 months after launch, Karhoo founder and CEO Daniel Ishag stepped down, and days later, the company announced its plan to shut down.
According to TechCrunch, Ishag never declared how much Karhoo was able to raise, but according to Forbes, the company reportedly blew through $US52 million in its short life and ultimately filed for bankruptcy.
When Karhoo closed up shop in 2016, it still owed nearly $US2 billion in wages to its workers in cities across the world. However, Karhoo found some hope when Nissan/Renault came in to acquire the failed startup. Ishag did not immediately respond to Business Insider’s request for comment.
According to Business Wire, Ishag has since left the transportation and tech realm and entered healthcare with new venture called Baseline Health Technologies, which uses technology to map human health.
Shyp, an on-demand shipping startup, was frequently compared to Uber for its potential to disrupt an entire industry — but it just wasn’t in the cards. Shyp was able to raise $US60 million in funding from firms like Kleiner Perkins, but was ultimately unable to find success. And when Shyp attempted to raise more money, it was turned down.
Shyp’s former CEO and cofounder Kevin Gibbon wrote a blog post in March 2018 detailing the plans to shut down Shyp, saying, “Uber had transformed the way consumers thought about transportation. We could do the same, I was told. And I believed it.”
Fortune wrote Shyp’s failure illustrates an alarming, if not ever-present trend in Silicon Valley, where gullible CEOs like Gibbon believe “that piles of money last forever, and that attracting famous VCs guarantees success.”
Just last month, Shyp announced on Twitter its plan to resurrect, but without Gibbon. Gibbon did not immediately respond to Business Insider’s request for comment.