Entrepreneur and storyteller: yours truly Startup Mortician
Before asking other entrepreneurs to share their startup failure stories, I put myself through the same process. I think it is only fair. My co-founder Grace joined me in this autopsy, which turned out to be surprisingly therapeutic.
Name of the project: Startwise
About: A revenue-sharing platform for small businesses and their investors.
Year started: 2015
Year closed: 2018
Location: San Francisco, CA
How much capital raised: $160K
Who were the investors: 2 founders, 1 angel, 1 accelerator
Key competitors at the time: WeFunder, NextSeed
Traction reached: Launched 2 fundraising campaigns with consumer product SMEs
Target market: Targeting US market, non-accredited investors, and consumer product small and medium companies.
Market situation at the time of start: At the time, the conversation around the Title III JOBS Act (enabling non-accredited investors to invest in private companies) restarted and the regulation was passed in 2016. We identified a number of trends that inspired us:
- crowdfunding is on the rise with Kickstarter, Indiegogo, Kiva;
- the concept of a shared economy and passive income is welcomed by the market (Airbnb);
- supporting local small businesses is gaining momentum;
- customers start caring more about the impact and sustainability of the businesses they support.
What inspired the idea: My co-founder Grace and I were working at the VC funds at the time and saw a lot of promising companies that were not really the next unicorn but were solid businesses with clear revenues. We saw the need for alternatives to VC funding and traditional SME lending. At the same time, we wanted to create an alternative for the 99% — people who are non-accredited investors but want to put their money to work and create more income streams.
Success parts, what worked: We decided to focus on the revenue-sharing concept and it was welcomed by both entrepreneurs and investors. It was easy to understand even if the one didn’t have a deep understanding of finance. We were in the lists for Top Startups To Watch, were nominated for 30 Under 30 Forbes Finance, it was quite promising.
- Onboarding business owners was a hard and long process: the need to educate about the new regulation, explaining the concept of revenue sharing. The huge bottleneck was the regulatory filings that companies were required to make — and the non-user-friendly .gov online system.
- Lack of a savvy marketing team/CMO within our team.
- The unwillingness of business owners to actively participate in the promotion of their own fundraising campaigns, event when provided materials, and step by step plan.
- Targeted non-accredited investors had no knowledge about the new regulation and the opportunities it is offering to them. This called for a huge amount of education around the regulation, investment models, frameworks to evaluate businesses.
- We were a very small team with very limited funding and eventually, we burned out.
- We needed more funding but we also needed more traction to get funding — the chicken and the egg situation.
- We did waste time and energy on things that set us back like picking the wrong accelerator program, joining wrong training workshops.
- First-mover disadvantage — the need to educate and prep the market and multiple parties involved in the process, like regulatory bodies.
When the challenges came up, what changed in the market (new competitor, change in regulations, etc.): Suggestions to edit the limits offered by the Title III JOBS Act by regulators themselves. Other crowdfunding platforms are acquiring licenses under different regulations, requiring less paperwork from the customers.
Key causes of failure:
- The failed onboarding process for business owners
- Unworkable regulatory filing online system which we have no control over
- The unwillingness of users to actively participate in their own campaign promotion. Would have been nice having Reddit Autopilot back then!
- Lack of education and information on the new law and opportunity to invest
- Founders burnout
- Lack of funding and need for more traction to get funding
- First-mover disadvantage
- Betting on the wrong regulation
- Lack of strong marketing skills within the team
- First-time founder mistakes
Grateful for: The incredible learning experience on building a business, teamwork, communications — you name it. New friends for life and a wider professional network. New discoveries about own self, own abilities and passions.
This information’s purpose is to help learn from the mistakes (and pivots) of others, as well as to encourage founders to openly speak about things that failed. Look at it as a shared f*ckup depository for resilient brilliant minds.
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