Y Combinator Failed Startups
failory.com
failory.com
Why pick on them, for no reason? They didn't do anything unethical, and most didn't seem to even raise a Series A.
You have no clue why they failed; you just speculate... and you don't just name the companies, you call out random founders by name. These people put themselves out there and worked hard, and now they're going to get a Google Alert saying they're in a blog post called "Biggest Y Combinator Failed Startups."
Most YC companies don't work out. In my batch (5 years ago), about 80% are out of business now. That's okay! That's just how it works. I'm all for talking about failures, but it's weird you just pick on a few small random YC startups.
There’s an inclination to view this sort of thing as adversarial / picking on the founders, especially because there are a lot of haters for successful people in general. But this piece seemed clinical, not critical.
Like, what could anyone learn about from what you wrote about, for example, the vegan milk startup? You just picked on a random small company, and then said generic stuff about "economies of scale".
I love hearing about failures (and am happy to talk about my own!), but there's a difference between exploring what went wrong, and "punching down". Now when you Google their names, "Biggest Y Combinator Failed Startups" will be the result. Unfair.
But one shouldn't mention the names of the founders because future crowdfunders being able to look them up for the purpose of due diligence and deciding whether to invest their hard-earned dollars in their next venture would be unethical.
(I'd imagine both the law on, and attitudes to, online privacy would be in a much different place if people in Silicon Valley exercised the same level of empathy for all those pesky end users as they always find in droves for the saintly and well-intentioned startup founders.)
Maybe for larger companies this is debatably okay, because there's diffusion of responsibility. But to call out a startup with one or two founders who have been shouldering the weight of the startup? Who wrote a post because they wanted to be helpful, and now they're being publicly shamed? Come on
Part of that business model is that in case a company doesn't work out (i.e. almost always), these losses are absorbed such that the investor can spin the investment as a success to their clients (e.g. pension funds). YC is good at this to the extent that even these failures are quite lucrative for everyone involved. The message with this article is that complete failure and loss of investment is quite rare for them but of course it happens. It's basically a "don't worry, we know what we are doing" kind of message.
Any time you hear the words acquihire, what happens is a controlled shut down of a failed business. Mostly these are actually complete failures in terms of the buying company spending money on a company that then gets unceremoniously killed or absorbed into the main company at a loss and is never heard from again. Quite often this is the whole point: kill the company as cheaply as possible with as little loss of face for founders and investors as possible. Mostly, services are shut down or mismanaged, people start leaving almost right away, and most of the "money" is actually just investors swapping one set of shares for another and high-fiving each other. Somebody just lost but it's not them.
Why would companies volunteer to do that? Well for that, you just have to follow the money and basically you'll find that these companies are typically backed by the same groups of investors and financial institutions. It's a form of creative bookkeeping and investors consolidating their assets and risk such that they can continue to up-sell their abilities to manage other people's money (because it is rarely their own cash).
Startup funding is mostly a pyramid scheme with smart investors at the top basically making money from increasingly more gullible investors the further down that pyramid you go. Sometimes it accidentally produces a profitable company that actually makes it to an IPO worth many billions. These unicorns then promptly start acquiring their less lucky siblings so that those too can be spun as a great success. But even some of those unicorns are questionable. E.g. Uber is a great success. So is Wework. But are they profitable and will they ever be and does that even matter? YC is successful in the sense that their network of investors has access to a great number of such unicorns. This means most of the companies they investment in are relatively safe investments no matter how silly the company is.
Most failed startups fit into the following timeline: was burning more money than it was making => failed at raising more money => did a round of layoffs / cost cuts to get economics under control => couldn't right the ship and shut down / did a fire sale or acquihire
But, the above timeline doesn't teach you much about why the company really failed. The real answer almost always involves a multitude of contributing factors, and requires intimate knowledge of the startup's business.
For the most part, the only reliable source for this type of information is one of the founders, board members, or (sometimes but not always) c-level execs. And, even then, they have to be willing to be vulnerable (which is very rare).
If I could give some advice to Failory, it would be to think about how you can incentivize founders to share their stories. As it stands, they have little to gain and potentially a lot to lose (e.g. being labeled one of YC's "biggest failures")
I for one would like to see this table with the founders' average email response times.
Of course, it's more of a symptom that is an emergent property than a root cause. Like saying every top tennis player uses $$$ rackets - so if I use $$$ rackets, I'll be a top tennis player.
If people knew Sam Altman judged companies more positively by their response times which resulted in more funding, that's a metric just begging to be gamed without actually making the business better.
Side note, for a throwaway account - you are impressively dedicated to it.
Independently, opportunity can be a real wild card.
Regardless, I think an investor can expect a prospect to be putting full time effort into building a relationship that can lead to a growth partnership, and not wanting to miss a day.
Once you get into ongoing communication you may not want to miss an hour.
If there is good allowance for urgency you're still going to need to go full professional and be able to pick up the phone.
Sometimes around-the-clock with backup.
When you can start out that way there's no need for email at all.
Might also be best at a high point of self-esteem, decisiveness, and undelayed action.
Other times when those are not all completely within reach, related actions should be in progress to more than compensate, in preparation for less inhibited times.
When you run a business from start to scale, you likely know the main failure point, and it is probably a few simple variables.
https://theconversation.com/huge-success-in-business-is-larg...
He helped me understand both the concept of 'stacking risk' (where the startup is taking on more unknowns than it should) and 'over burning' where a startup attempts to hire itself into shortening its schedule which not only fails but exhausts needed capital.
To this day I never hire an engineer if I cannot write down EXACTLY what they will be working on and how it will help the schedule. Even if they are a "super star", if I don't have something for them to do that will check off things that are currently on the path to the next milestone, no offer.
Whenever I've watched over hiring from inside or outside it tends to end badly.
I can relate with this. I first saw this phenomenon play out twice within a large FAANG company where the leadership wanted to ship an immensely complex product fast by throwing people and so over hired. Both products failed miserably.
And the I saw a repeat of this at the entire company level. The extent of over hire was immense, fueled by cheap investor money and their push to grow-at-all-cost. The company is now just barely managing to survive, after a few rounds of layoffs and pivots.
Over hiring is a huge red flag from the long term success perspective. However, as an individual, if you get in early on in the cycle and play it well you will rise very fast in the org chart. I’ve seen a few do that consistently. Good for them I guess.
You might have some obvious situations that were big issues, but I'm not sure reason for a business failure (sometimes even success) is always obvious.
$66m raised, bad operations, bas unit economics, lawsuits and an abrupt shutdown.
All of that after being the calley darling for so long.
Move fast and break things?
I have no idea how impressive Adora is and I cannot speak to her qualifications, but HomeJoy should be a textbook example of an SV failure.
If you actually look into the details of the matter, what happened was that the co-founder acquired the failed company as it was put through a bankruptcy process.
People who weren't privy to the process thought it was stealing when it really wasn't different from any other acquisition.
So, her brother?
For reference: https://en.wikipedia.org/wiki/Homejoy#Controversies
If anyone wants a startup idea, it's to make the inverse of Stripe Atlas. Closing down a company properly is a very long and complicated process.
http://www.businessinsider.sg/aaron-cheung-brings-homejoy-cu...
I'm skeptical a neutral 3rd-party would advocate selling credit card data to a person planning an illegal scheme. Especially when that person is your own brother.
Which part of this is illegal, or — I’ll meet you halfway — unethical? It seems like a straightforward business transaction.
If I’m missing something nefarious, I’d like to educate myself to avoid it. What do you see as the problem?
(Apologies if my facts are incorrect; this is info from elsewhere in the thread, so maybe you know something that hasn’t been said yet.)
> The weird tale begins with an email that John Salzarulo received Tuesday afternoon. A Los Angeles based user, Salzarulo received an email from Cheung that "$20 cleaning is back!" thanks to its local partner.
> "I wanted to reach out personally today to invite you to join a private house cleaning trial with our Los Angeles partner, Fly Maids," Cheung wrote, not disclosing his connection to the company.
> When Salzarulo clicked the email link, the Fly Maids' site logged him into his Homejoy account, which still had his credit card number and notes about where to find the trash can.
I don't know if it's illegal, but I definitely think it's unethical.
Thank you for finding that! This opens up a fascinating discussion about ethics.
So, to start from a purely capitalistic viewpoint, it seems like you are free to use your property that you own however you wish, subject to the law. That raises questions like: in this situation, is it legal for the CC numbers to be stored in that way? From the customer’s POV, they authorized HomeJoy to store their CC info, not Fly Maids. But that leads to the question of: those CC numbers are stored somewhere (or the authorization token) and those assets were a part of the sale.
I don’t know. It’s a massive advantage to have your customers in a position of “just click this button to give us money” rather than pestering for CC details.
It’s a little odd, to be sure, but... it seems like unless it’s illegal, it might not be unethical to take advantage of that opportunity. It depends how you feel about capitalism, I suppose. If there was nothing illegal here, which seems perhaps likely, then it seems valid.
From another point of view, it sounds like he was just trying very hard to succeed, and in some sense Fly Maids was the continuation of his previous endeavor. So I sort of understand why it might have felt natural to reach out to the customers you were already doing business with.
But again, all of this has two important assumptions: (a) he legally owned all assets, and (b) used those assets to the letter of the law. If those are mistaken then someone with more experience should definitely call it out.
"When we contacted customers, we didn’t tell them we were Homejoy relaunching because we wanted to gauge reception to our new model without the influence of Homejoy’s brand," Cheung allegedly wrote. "As a result, we scared many customers, who expected the worst had happened to their data. We should have told customers upfront who we were, what we were testing, and used original content."
I dunno. This seems pretty reasonable, honestly. It kind of alarms me that you see this as clearly unethical, because I could see myself making this same mistake, in a different life. If you feel like explaining more of the reasoning regarding the ethics, I’d personally find it interesting to listen.
It seems like this should be readily answerable: in the event of an aquisition, does the acquirer have the legal right to use the card authorization token from the customers of the acquired startup? Note that Fly Maid did not charge them without their consent; they merely made the option available without them having to enter any CC info.
The reason I’m pressing this is because we’re talking about a YC alum + illegal behavior, which to my knowledge might even be a first.
Hopefully a lawyer might chime in with clarification. If Fly Maid was not authorized to utilize any of HomeJoy customers’ CC info during the course of business, regardless of acquisition, then this seems pretty clear cut.
We're now 2 years later pushing $2M ARR profitably and about to raise our Series A. YC not taking 7% of our company was the best thing that ever happened to us.
YCombinator is nothing like what it used to be. The majority of the partners are useless as venture partners.
Picking startups is hard, like picking stocks. You aren’t gonna pick every winner, but frankly 2M in ARR after two years is not exactly a home-run for YC. So, perhaps them passing was the right call for YC.
Congrats though, sounds like you’ve built something useful and you can be proud of that. Plus, taking VC money ain’t all it’s cracked up to be. If you can bootstrap to get to a level that pay’s yourself $200-300k a year, that’s a win.
It's been awhile since I looked at this deeply, but I thought the path of a good startup is to raise a seed with an 18 month runway, grow to 1m ARR, and then raise a series A. Assuming that's true, growing to 2m ARR in 2 years is in the ballpark.
I always felt really gross afterwards because I felt like the interviewee was wronged, but it just wasn't worth the potential conflict with my coworkers/friends if I did anything about it, either during or after. Walking on eggshells and all that.
What did the co. look like a year before YC application and a year after?
YC today: no Paul Graham, and too many right-wingers.
If you're open to it, I'd love if you could email me the name of your company (jared@ycombinator.com). We are extremely interested in learning from mistakes like this.
And to be clear, I've invested in plenty of startups with similar models. But I understand your perception of how things went.
I'm curious to hear more. How do you go about this?
There are far too many examples of founders succeeding with an idea after many people before them failed with same idea. I think any good investor is cognizant of this.
If someone is in a situation where they really don't have anything else to do on Christmas, ok. But hard to imagine they don't have some friends or family missing them...
Granted I could see being passionate about building a business but ... yeah, to an extent it was kinda weird to read in that way too.
I've seen the $66m figure quoted a lot but not sure where it comes from.
Thanks friend - I needed that chuckle today!
I've always known startups are hard but it seems that hardware startups, even when they appear to be on a rocketship trajectory, are nigh impossible.
> Here are some of their biggest failures, sorted by funding. [...] NerdPilots
My first thought was "I've never heard of NerdPilots, but they must have been awful" before realising that it was an ad.
To clarify: by numbers, the vast majority of startups fail, and that's part of trying new things until one of them works great. I know multiple founder friends that had 1-3 *big failures before they built a great company after that.
They raised $70M as Grin and then $150M after the merger with Yellow. I think at Demo Day they were trying to raise at a $100M cap with just an idea / pre-launch. After raising an insane amount of money in a matter of moths, they expanded extremely quickly to dozens of cities in several countries in LATAM while having bad unit economics ("land-grab"). There are likely interesting learning lessons there.
> Growth-hacking on the wild-west which is the internet is one thing, but when you try to use similar tactics in traditional, heavily regulated industries in developed, heavily regulated markets - that’s a recipe for disaster.
Was this growth-hacking or outright fraud? Are those the same thing?
https://www.cnbc.com/2019/05/06/ubiome-suspends-clinical-ope...
>In the months before the FBI search, the company would often bill insurance multiple times for its tests without patient consent, insiders told CNBC. In an interview, one customer, Marc Harris, told CNBC that he sent in two samples, but the $2,970 test was billed to his insurance five times.
To the rest of us. Schadenfreude is its own reward.
The Magic Leap doesn't do what they claimed it would do. But it does do what the HoloLens 1 does, slightly better in some areas, slightly worse in others.
The Meta2 was fundamentally broken. Nothing on it worked correctly. Everything on it was a hack job.
I was in the car w/ the founders on the way to Hacker Dojo when they got the news that they'd been accepted into YC. At this point much of their tech demo had been built by some kid they'd hooked up with at the Dojo. One time I remember one of the founders was on the phone with his mom trying to get more time out of him. I never saw the technology deliver on any promises but I was probably like 22 at the time and I was stoked to get to play with depth cameras and AR goggles at all. I helped them film some tech demos and build some jigs to take footage through the googles. It's through Meta that I met Steves Mann and Feiner. I had a few great conversations with them at the time, and later it also made me realize that brilliant people who you deeply respect can make some really dumb bets too.
The best way to describe Meta is "store brand Magic Leap". Huge gap between what they had and what they were selling, and never enough focus to put in the hard work to narrow it, or the humility to admit that they overpromised. They did eventually pay me, though I think some friends of mine were not so lucky. I would say it was mostly incompetence and not malice. I think the founders truly believed many of the lies they told and it was easy to get caught up in that energy. Working with them and hanging out in their general orbit at ChezJJ and the Hacker Dojo was probably the most HBO's Silicon Valley experience of my life and I'm deeply grateful for it.
Many smaller base hits, a few home runs, or striking out? I don't follow the VC world much.
- Momentus: $1.2B IPO (https://www.cnbc.com/2020/10/07/momentus-the-latest-space-st...)
- Segment: acquired for $3.2B (https://news.ycombinator.com/item?id=24735414)
- MessageBird: reached a $3B valuation (https://techcrunch.com/2020/10/08/messagebird-series-c/)
More generally:
- 15-20 YC companies are now worth $1B or more.
- 100ish YC companies are now worth $100M - $1B. A good number of those (and others currently worth less than that) are growing very rapidly and will likely reach unicorn status in the next year.
So it seems like one can reliably expect 2-3 unicorns to come out of each YC batch. Those 2-3 unicorns likely more than make up for the costs associated with running each batch (including all of the ~$150K investments). Seems quite good to me.
Admittedly, there hasn't yet been a Google/Amazon/Apple/Microsoft-scale company that has come out of YC yet. I think it's only a matter of time until that happens -- anecdotally it seems like at least a handful out of the recent batches could become massive home runs, as well as other more established companies like Stripe that seem to be growing quite well.
Kudos on failing up.
I haven't tried them as I'm not from the states. I'm Indian though and found the buttermilk company products to be highly priced and didn't find anything novel when compared to Haldirams or MTR. At their price you could probably get food from a takeaway.
Trump is a convenient scapegoat here but in no way related to why they failed. Meta was headed to guardianship not long after the Meta2 was released.
Overall Meta was just a poor experience with basically zero traction. They changed their hardware approach from the Meta1 to the 2 and it created a completely different experience while on the side the Hololens was blowing everyone out of the water and they weren't in any position to compete. Add to that the complete collapse of Magic Leap and the bubble burst for AR this round.
Reinforcing again - Augmented Reality is probably the hardest market/technology to succeed or even just stay alive in.
[1] https://www.businessinsider.com/fedex-saved-from-bankruptcy-...
Why did it change? This is a discussion of the biggest failures out of thousands of startups, not that YC is horrible or something.
It's not YC "failed" startups, it's (a list of) YC "failed startups".
Is there another president that's so callous about small medium sized businesses?
Time after time, YC startups seem to engage in practices which are unethical or dark or downright scammy. Be it Homejoy, uBiome, AirBnB (updating consent without asking). They seem to employ aggresive marketing tactics. They work under assumption that "law does not apply to us". Although this is true for ultra rich people, why regular seed funded do it? Is growth focus this much necessary to the to do outright fraud or in engage in shady tactics? They are willing to kill other people's business and livelihood for their growth. I would call this "preying tactics"
Paul is very successful person and I read about him a lot. Why companies going through YC do this? Or is this just Business-as-usual (BAU) in Americas? Kill or be killed?
Thanks for responding!
However:
1) Putting a grilled cheese sandwich restaurant in ferociously expensive real estate known for upscale, health-conscious consumers can't be smart (Irvine Spectrum Center?--LOL)
2) The food just wasn't that good. Sorry. They deserve to go out of business.
Just make some specially-designed plates with a QR code target printed on them and the drones won't even need to land, they can just drop the food right on your plate after toasting the sandwich into a more aerodynamic shape...
I'd say they achieved even less than most start-ups.
Time after time, YC startups seem to engage in practices which are unethical or dark or downright scammy. Be it Homejoy, uBiome, or many others. They seem to employ aggresive marketing tactics. They work under assumption that "law does not apply to us". Although this is true for ultra rich people, why regular seed funded do it? Is growth focus this much necessary to the to do outright fraud or in engage in shady tactics? They are willing to kill other people's business and livelihood for their growth. I would call this "preying tactics"
Paul is very successful person and I read about him a lot. Why companies going through YC do this? Or is this just Business-as-usual (BAU) in Americas? Kill or be killed?
Thanks for responding!