I wonder when Justin lost his conviction? I don't believe you can lose conviction in 2 month.
I'd rather pitch into the latter, which I suppose is sunk cost fallacy manifest.
> what is "blood equity"?
Even failing startups, with little cash and poor market penetration are often worth something to somebody. It could be a small client list, the team, patents, or just an attractive domain name. Most founders leading failing startups will try to sell to suitors for pennies on the dollar invested. Sometimes they get a small cash bump (or in WeWork's case, a small $1B), but it also means they can say they were acquired rather than simply failed. And they're right, building a company and selling it for $1.00 is far more difficult than not selling it at all.
Investors don't always like this because they recognize the loss at acquisition, which hurts their published returns. But more often, they don't care. They know the odds before-hand and prepare for events like this.
The people who lose the hardest are the employees with just stock-options or small equity stakes. Everyone's stock will be worthless, but the founder can potentially walk-away with a decent "consulting" contract. The best a standard employee can hope for is being hired by the acquiring company and that their culture doesn't suck.
From the employees perspective, the bright side is that they are often the first people to figure out that a company is doomed (before investors, customers, or the press). They have the advantage of time when it comes to planning their next move.
One of my earlier startups had multiple acquisition offers which would have made all the shareholder employees quite happy, but since the offers wouldn't have moved the wealth needle of the already wealthy founders by an order of magnitude, they turned them all down.
Years later and $100m+ of VC money burned the place went bankrupt and I now have some very expensive toilet paper in a folder somewhere.
This is distressingly common, and not just in the valley.
I've seen numerous film deals fall apart because the producer didn't want to take a 10-30% discount on their standard fee (we're talking in the realm of a $150k discount on a personal take of 500k-1.5m on a deal), films that otherwise would've actually been made ended up falling apart because someone wanted to extract just that much more value.
Kinda like overplaying the market, really.
part of the “challenge” of being a famous founder is you can raise pre product.
$75M seems insane for a company like that. Burn couldn’t have been that high, mostly rent and salaries, no heavy computation, etc.
Weirdly, the investors are happier with that than 5 smaller series A's of money-making / real-IP companies with existing growth engines. Easier to bet on nothing vs improving.
I do find the flameout odd, and not isolated to Atrium. Why flameout vs spinoff a small business for folks who wanted to continue? Same difference to the investors, but meaningful to the lives of the believers. Worst case, just OSS for them..
Thinking more: A good comparison is Carta, also in legal, whose funding was more correlated to revenue and growth.
In the case of Atrium, I'm sure that the investors would have had plenty of board-level conversations about the potential trajectory of the company. The decision to shut down and return funds was likely endorsed by the investors, if not proposed by them, who would doubtless remain extremely keen to invest in whatever Justin comes up with next.
[1] https://techcrunch.com/2014/08/05/justin-tv-shuts-down-to-le...