Take The Interview was a portfolio company of ours that ultimatelyfailed. Below I share ourlearnings.
Cashinefficiency. When weinvested, the company had about $60k of MRR but was burning $170k a month. It was an oversight on our part to getinvolved with a business that burned nearly $3 for every $1 of revenue andfrankly back in 2014 when we invested, we didn’t have the respect for cashefficiency that we have now. We’reactually embarrassed about it. Today wewouldn’t look at any company burning more than $0.50 for every $1 of MRR.
Churnbecame an issue, and we blamed the customer. At the time of investment, the company was retainingand renewing customers at a nice rate. Over time however, churn picked up and net dollar retention fell from100%+ to 85%+. Instead of lookinginwardly and fixing the product and processes, the company blamed the customers. They sited customers not buying in, the lossof a champion, customers merging, customers being acquired, etc as opposed to questioningour product-market fit and sales and CS processes. They should have asked whether they wereselling to the ideal customer, whether they were evangelizing the product with seniormanagement properly, whether we could find a way to onboard more users at thecustomer so we could be much stickier, etc. As a result, the churn was never addressed.
Thecompany avoided layoffs. It wasobvious we should have cut expenses and done one real round of deep layoffs. Instead the plan became to ‘grow out of theburn’. We never did. There was too much concern for maintainingthe culture, and now of course there is no culture because the company is gone.
Acofounder leaving should have resulted in a total restructure. Out of frustration, a cofounder eventually left thebusiness. At that point, the boardshould have questioned everything about what the CEO was doing, but the momentwas allowed to pass. The cofounderdidn’t ring the alarm on his way out, and the board didn’t dig beyond what theywere being told.
Amerger didn’t work. With somany mistakes made along the way, the company was forced to merge with a largerbut similarly weak peer. Given ourinaction to fix things sooner, the merger was the least worst choice of manybad options. Of course, smooshing twounderperforming companies together does not make a strong company and we’venever seen it work. Ultimately all theequity holders lost everything.
Looking back, we made some obvious mistakes at the time ofinvestment. During the investment,management and the board were too complacent and not honest with themselvesabout the state of the business. We blamedthe market and customers instead of evaluating ourselves, we didn’t make changes fast enough, and when we did restructureit was too little too late.
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