Autopsy of a death in our portfolio

We had a company die on us last month. The company and those involved will remain nameless in order to protect the innocent (and the guilty), but I do want to share our learnings. Mistakes made are outlined below.

Cash inefficiency. When we invested, the company had about $60k of MRR but was burning $170k a month. It was an oversight on our part to get involved with a business that burned nearly $3 for every $1 of revenue, but we definitely learned our lesson (and learning is expensive). Today we wouldn’t look at any company burning more than $0.50 for every $1 of revenue, and generally we want to see a revenue to burn ratio better than 3:1. Many other VC have a similar mantra, so keep the burn ratio in check.

Churn became an issue, and it wasn’t addressed. At the time of investment, the company was retaining and renewing customers at a nice rate. Over time however, churn picked up and net dollar retention fell from 100%+ to 85%+. There were two mistakes here: i) the company came up with excuses for churn, not reasons. They blamed customers not buying in, loss of a champion, customers merging, etc as opposed to looking inward and asking whether we were selling to the ideal customer or whether the product was competitive; ii) the right time to address churn is right away. The difference between net dollar retention of 103% and 100% is very large when it comes to the dollar value of ARR, especially as companies get larger. The company should have moved quickly to understand what was happening.

We avoided layoffs. It was obvious we should have cut expenses and done a real round of deep layoffs, but instead the plan became to ‘grow out of the burn’. We never did. There was too much concern for the impact to culture and of course growing out of burn when a business isn’t performing is much harder to do than right-sizing the burn.

A cofounder leaving should have resulted in a total restructure. Out of frustration, a cofounder eventually left the business. A restructuring should have happened at that point. However, inaction to date really limited optionality and in all likelihood the company was past the point of no return. We should have acted faster to make tough choices, but we failed. Losing the cofounder compounded things, because now there was no reasonable insider that could replace the CEO or assist a new CEO.

A merger didn’t work. With so many mistakes made along the way, the company was forced to merge with a larger but similarly weak peer. Given our inaction to fix things sooner, the merger was the least worst choice of many bad options. Of course, smooshing two underperforming companies together does not make a strong company. Ultimately all the equity holders lost everything and the lender is going to struggle to achieve recovery.

Looking back, the things the company should have done are not rocket science. It’s about not only recognizing the problem but also having the gumption to fix it, and the latter was lacking. If you need to take medicine, just do it. Companies don’t heal on their own.

Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures. Visit us at and email directly at We invest in companies with run rate revenue of $3mm to $30mm, with year over year growth of 20% to 100%+ depending on revenue. We lead or follow in growth rounds and special situations like inside rounds, small rounds, rushed rounds, corralling investors with our term sheet, cap table clean up, and extensions. We can commit in 3 weeks and our check is $1mm to $4mm. Also visit for always up-to-date SaaS metrics.