The CEO of the startup that dissolved overnight explains what happened: Burn

Earlier this week, a virtual assistant startup that had raised about $US5 million dissolved, suddenly laying off about 400 employees via email and changing its website to say it was “pausing operations.”

Employees told Business Insider’s Biz Carson that they felt blindsided by the news. Clients felt left in the lurch too.

Today, CEO Maren Kate Donovan explains about what happened in a Medium post, writing that she “cannot express my deep sorrow at letting down our employees, our clients, and our investors.”

What went wrong? Her short answer: “Burn.”

Here’s the key part of her essay:

Burn is that tricky thing that isn’t discussed much in the Silicon Valley community because access to capital, in good times, seems so easy. Burn is the amount of money that goes out the door, over and above what comes in, so if you earn $US100 in a month but pay out $US150, your burn is $US50.

Zirtual was not flush with capital  —  for as many people as we had, we were extremely lean. In total we raised almost $US5 million over the past three years, but when we moved from independent contractors (ICs) to employees, our costs skyrocketed. (Simple maths is add 20 — 30% on to whatever you pay an IC to know what it will cost to have them as an employee).

And at the end of the day… “burn” is what happened to Zirtual.

The reason we couldn’t give more notice was that up until the 11th hour, I did everything I could to raise more money and right the ship.

After failing to secure more funds, the law required us to terminate everyone when it became clear to us that we wouldn’t be able to make the next payroll.

This also meant that all of our clients immediately lost their support.

The outcome breaks my heart  —  hundreds of our people out of work and thousands of people losing a service they loved, and paid for, overnight.

I cannot express my deep sorrow at letting down our employees, our clients and our investors. I’ve read notes from people calling me stoic as this shit storm has hailed down on us. But in reality every time I am alone I cry like someone whose child has been ripped from her arms.

Here’s Donovan’s full post.

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