I certainly don't think this is the end. Was writing a comment but decided I will post it on my blog https://blog.scrape.it/secret-shutting-down-isnt-the-end
Secret Shuts Down
51–60 of 253 posts
Re: Secret Shuts Down
#52This is going to be used as a case study of why not to let founders take cash off the table in early rounds for years to come.
To be honest, the investors knew what they were signing at the time. If they didn't do their due diligence to figure out how the application was going to make any money, they deserve what they had coming for them. That's the kind of shitty "let's throw money out the window, in case we hit one successful startup" attitude that'll get us in a bubble.
Re: Secret Shuts Down
#53Earlier quoted context omitted.
The whole point of taking money off the table is to keep it when the company goes bust. What you're describing is more similar to a loan where the collateral would be a slice of equity.
What? "The point" of selling equity for cash is to get liquidity. That is the justification for allowing founders to do it early, not to reward them when their company goes bust. In fact, when executives sell a bunch of stock right before public companies announce bad news or go bust it often warrants an insider trading investigation.
What else would you want that liquidity for? Paying off the founders lets investors worry less about them wanting to sell before the investors want to sell (the investors don't have 99% of their net worth in the startup like the founders likely do).
It would be nuts to try and claw back that money. The founders surely had remaining equity which is now worthless, everyone is taking a hair cut.
> In fact, when executives sell a bunch of stock right before public companies announce bad news or go bust it often warrants an insider trading investigation.
They didn't just do this, the last round was in July 2014. It was a flash in the pan.
Re: Secret Shuts Down
#54"Secret will hand its remaining cash back to investors" Minus the $6M the founders took off the table? If they keep it.. if ever there were a case for blacklisting founders, this is it. It is definitely NOT cool to pull a move like that. You want to cash out early a little because you've been boostrapping, ok, but if you then bail on the company and shut it down within a year, then you start to look like a fraud who…
1. What do you mean "if they take it..."? It is their money. They gave away personal equity that was at the time worth $6M for the cash.
2. It is ridiculous to assume they pulled any move. Startups are a high risk gamble and the VCs who put money in them know it better than anyone else does. So they didn't pull a move on anyone.
3. Let's say a company raises $1M on a $3M valuation. Then in one year the valuation goes up to $300M. Would you be calling for blacklisting of those investors? Because by your logic, they should know the company was going to be so successful and should have given the founders a better deal.
Re: Secret Shuts Down
#55This has been a fascinating story to watch unfold (and experience as a user.)
When Secret came out, the addiction bug bit me hard too -- it was _extremely_ compelling. I posted. My friends posted. Everyone was checking Secret obsessively. People were "communicating" with their exes (or so they thought), people were guessing who was posting what. It was fun. It was interesting. It pulled some emotional heartstrings (I had a few interactions with "friends" who I was pretty certain I would never have spoken with in real life - i.e. bad breakups, etc.)
Then it took a nasty turn. There was gossip, there were attacks. They didn't get too bad, but the tone changed.
Then they released the Android app. More users signed up. It started to take on a high school feeling ("omg my crush winked at me"). It got more popular.
Then, at least in SF, it started being almost entirely about gay sexual fantasies. Friends in my circle started using it less, so it got less interesting to me. Eventually I stopped using it when nobody I knew was posting.
After that, I stopped following. They did some massive redesign which seemed terrible, and I didn't really pay attention after that.
In the end, it was a niche fad that had particular appeal if you were a tech person in SF. All the gossip - as taboo as it was - was interesting and compelling (I admit it!). It was a fun, exciting, interesting fad, but it succumbed to the sort of thing fads usually succumb to -- time.
The problem with these sorts of things - flash in the pan community-specific fads - is that they're _incredibly_ hard to sustain, and even harder to monetize as a business. I certainly understand the instinct of VCs to throw money at a hot app experiencing meteoric growth (and I doubly understand the response of the founders to take both the investment and the secondary $), but it was a longshot to start with.
Frankly, I admire them for giving it a shot, recognizing the reality, and returning the leftover capital. Well and rationally played all around, me thinks.
Re: Secret Shuts Down
#56Earlier quoted context omitted.
Totally makes sense - but I also completely get why the investors would bite on hype - missing the next billion dollar company is way worse than incorrectly picking a few duds.
A $35m dud, though. That's not small fry.
Well they are returning some capital, so perhaps the damage isn't quite that bad.
Re: Secret Shuts Down
#57Earlier quoted context omitted.
The whole point of taking money off the table is to keep it when the company goes bust. What you're describing is more similar to a loan where the collateral would be a slice of equity.
What? "The point" of selling equity for cash is to get liquidity. That is the justification for allowing founders to do it early, not to reward them when their company goes bust. In fact, when executives sell a bunch of stock right before public companies announce bad news or go bust it often warrants an insider trading investigation.
executives sell a bunch of stock right before public companies announce bad news or go bust it often warrants an insider trading investigation
Secret isn't a public company. Secret's investors are insiders themselves.
Re: Secret Shuts Down
#58Earlier quoted context omitted.
What? "The point" of selling equity for cash is to get liquidity. That is the justification for allowing founders to do it early, not to reward them when their company goes bust. In fact, when executives sell a bunch of stock right before public companies announce bad news or go bust it often warrants an insider trading investigation.
What else would you want that liquidity for? Paying off the founders lets investors worry less about them wanting to sell before the investors want to sell (the investors don't have 99% of their net worth in the startup like the founders likely do). It would be nuts to try and claw back that money. The founders surely had remaining equity which is now worthless, everyone is taking a hair cut. > In fact, when executiv…
Also, the $6M cash could have also been worth $600M. In that case, would the OP want the investors to give some money back to the Secret founders..?
Re: Secret Shuts Down
#59For the curious, pulled their deal history from PitchBook: Secret raised their B last July at a post valuation just over 130M ( http://i.imgur.com/jNXw5PZ.png ). They had some major investors backing them up, and then the hype train just... stopped. I remember so many people being so high on it when it launched, with several friends all raving about how fun/addicting it was, then just poof it disappeared from convers…
> http://i.imgur.com/jNXw5PZ.png Here was the intended use of the $25M: "The funding will be used to implement two new features, a Facebook login and the ability to follow posts on a certain topic" . This is what is wrong with Silicon Valley today. An afternoon project for a single developer gets $25M from investors. Please, someone give me just $10M....I've already implemented Facebook login for my apps.
Oh yea? I'll do it for $9M.
Re: Secret Shuts Down
#60Earlier quoted context omitted.
The whole point of taking money off the table is to keep it when the company goes bust. What you're describing is more similar to a loan where the collateral would be a slice of equity.
What? "The point" of selling equity for cash is to get liquidity. That is the justification for allowing founders to do it early, not to reward them when their company goes bust. In fact, when executives sell a bunch of stock right before public companies announce bad news or go bust it often warrants an insider trading investigation.
The point of selling the company is to get liquidity. The point of founder cash-out rounds is to align incentives between the founders and investors. Investors have an incentive to see the company "Go big or go home", because they spread their bets across a whole portfolio of companies. Founders have an incentive to play it much safer, because their whole net worth is locked up in one company and without cash-out rounds, they have a strong incentive to take the first acquisition offer that leaves them financially independent rather than shoot for the one that maximizes the VC's financial outcomes.
I'm not close enough to Secret to know whether the system functioned as intended here. It's possible (and suspicious, given the timing of the rounds and subsequent redesign that trashed their brand) that Secret rode the hype machine, cashed out at the top of the Secret bubble, and left investors holding the bag. But it's also possible (and likely, given public statements made and their hiring behavior) that this was a good-faith investment by VCs seeking a return in a company that honestly thought they were on to the next big thing and cashed out so that their risk-tolerance would be aligned as they shot for the next big thing. In that case, the founder cash-out functioned exactly as intended, it just didn't have the outcome anyone was hoping for.