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How to proceed when you run out of cash, but you still believe?

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Re: How to proceed when you run out of cash, but you still believe?

#51

Post by t222 »

vassilyk wrote: post #33
dwrodri wrote: post #26

As someone who is interested in one day starting my own business, I have nothing but respect for someone who has the guts to follow through with that and pursue their vision. That being said... why did you (or if anyone else can chip in) decide to chase funding when you didn't have a business model? Maybe I'm being naïve here, but isn't it kind of crazy to raise 3.5M in funds for a business that has no plan but to be…

The real question is who invested, and why? Even though being an investor doesn't mean being smart at it, it's still a signal that those guys are/were onto something and needed the cash to accelerate/deploy. $3.5M for such a small remote team though... I'm not running the numbers but they were cash burning big time, for a long time.

> The real question is who invested, and why?

This always baffles me the most. Who gives money to a startup without a business model? I guess they just have funds to throw at the wall and hope something sticks.

Re: How to proceed when you run out of cash, but you still believe?

#52

Post by choward »

Those arguments for acquiring patents are as weak as the patents themselves. I'll admit that I only skimmed and read parts of them but nothing seems patentable or particularly innovative to me. It just looks like standard software engineering.

> as a startup we need to create value and this method has proven successful in the past

This means nothing to me. You did something I'm not a fan of in the past (patenting software) so that makes it okay to do now?

> we’ve never thought of using patents against others

It doesn't matter that you've never "thought of using patents against others". Things change. And the way that business is going it seems inevitable that these patents are going to end up in the hands of patent trolls. Patent trolls don't usually come up with their own patents. They buy companies that aren't doing well just for the patents.

> And now, our number one driver for building IP: companies sometimes need leverage to negotiate or deal with the big tech players

I don't understand this one at all. What negotiations are you having where patents help?

Re: How to proceed when you run out of cash, but you still believe?

#53

Post by nostrademons »

t222 wrote: post #51
vassilyk wrote: post #33

Earlier quoted context omitted.

The real question is who invested, and why? Even though being an investor doesn't mean being smart at it, it's still a signal that those guys are/were onto something and needed the cash to accelerate/deploy. $3.5M for such a small remote team though... I'm not running the numbers but they were cash burning big time, for a long time.

> The real question is who invested, and why? This always baffles me the most. Who gives money to a startup without a business model? I guess they just have funds to throw at the wall and hope something sticks.

Startups with scalable, repeatable business models are basically not startups anymore, since the whole point of a startup is to search for scalable, repeatable business model. And valuations match that: once the startup has actually found a scalable business model and is in its growth phase, expect to pay $100M or more for it, sometimes into the billions.

Re: How to proceed when you run out of cash, but you still believe?

#54

Post by bumblebee4 »

aldamiz wrote: post #34
bumblebee4 wrote: post #28

Looking at your own brand homepage, my impression is that it is too technical. I had expected to see many instagram-like pictures of people who demonstrate that they have managed to dress better by using your product. Isn't your value proposition that people can dress better? Maybe I have overlooked it but I think you have the perfect software to run an online shop. Pay influencers to use your product and viewers who…

Thanks bumblebee4 - fashiontasteapi.com is a the b2b side of the company and the value prop is that we can help retailers automatically classify clothes and understand/classify people. It is for technical and business people, not the end consumer. This is a line of business we were just starting, and hopefully will continue. The consumer website is chicisimo.com :)

Actually I have looked at chicisimo.com. The page is full of tag clouds. If I am looking for clothes, why should I install the app?

I don't know your market well, so this is not deep advice. I just think that people who care about their look don't want to deal with words. They want to 'see' why your app helps them to look better.

To convince me, show me before and after pics. I don't care how you label stuff, I just want to see nice clothes that look good on me.

Re: How to proceed when you run out of cash, but you still believe?

#55

Post by alehul »

solumos wrote: post #37
proxybop wrote: post #2

That’s an interesting article. To me, that company should have been really valuable and done really well especially in the retail clothing industry. I wonder if it’s more luck and connections than anything that has to do with product when forming a company

The name of the successful version of this company is "Stitch Fix"($2.39B market cap). > we haven’t found a relevant business model > We are a team of 8. We are 2 full-stack, 1 iOS, 1 Android and 4 product people. It's a bad sign if your company is 50% product people and you can't establish product-market fit, especially with a "whale" for a competitor. I guess it wouldn't be unheard of for a conglomerate like LVMH t…

> I guess it wouldn't be unheard of for a conglomerate like LVMH to acquire, but I'm not sure there's enough traction to justify a scenario like that.

+1. Worked on a fashion startup a while back, and being early-stage we still did end up in a meeting with a C-level at LVMH.

They're open to hearing a lot of ideas, but the conversations quickly fell apart at realizing quite how early-stage we were— they generally want validation in the form of success in integrating your product with other fashion companies.

From what we learned, fashion is notoriously behind in tech, and it's a slow climb up the chain if you're B2B.

Re: How to proceed when you run out of cash, but you still believe?

#56

Post by severine »

solumos wrote: post #37
proxybop wrote: post #2

That’s an interesting article. To me, that company should have been really valuable and done really well especially in the retail clothing industry. I wonder if it’s more luck and connections than anything that has to do with product when forming a company

The name of the successful version of this company is "Stitch Fix"($2.39B market cap). > we haven’t found a relevant business model > We are a team of 8. We are 2 full-stack, 1 iOS, 1 Android and 4 product people. It's a bad sign if your company is 50% product people and you can't establish product-market fit, especially with a "whale" for a competitor. I guess it wouldn't be unheard of for a conglomerate like LVMH t…

Thanks for the reference, I hadn't heard of Stitch Fix. They seem to have a great tech blog: https://multithreaded.stitchfix.com/blog/2019/09/10/stochast...

Re: How to proceed when you run out of cash, but you still believe?

#57

Post by fillipvt »

proxybop wrote: post #10
toomuchtodo wrote: post #8

Earlier quoted context omitted.

https://www.technologyreview.com/s/610395/if-youre-so-smart-... (If you’re so smart, why aren’t you rich? Turns out it’s just chance.)

Wow, thanks for ruining my life But seriously. That...feels true. But rather than waiting for things to happen to me, what happens if I go out and expose myself to more events where the dice of fate can be rolled for an outcome in my favor (or against)? Am I manipulating luck that way?

That certainly is the best way to maximize luck. One such type of event is getting to know people, be it through work, networking, online w/e.

Re: How to proceed when you run out of cash, but you still believe?

#58

Post by jassmith87 »

RussianCow wrote: post #41
AchieveLife wrote: post #30

Earlier quoted context omitted.

"Maybe I'm being naïve here, but isn't it kind of crazy to raise 3.5M in funds for a business that has no plan but to be acquired by someone else?" That's a sane question. IMO it's the current financial environment that encourages such "leap without looking" strategies. Fear of missing out is huge right now. I know of a startup that received a multi-million valuation and many more million in funding. They don't even…

This is very real. A friend of mine started a company with over a million in seed funding with what basically amounts to just an idea. Years later, the company isn't doing that well in terms of sales/revenue, but they still manage to raise money because they have a couple obvious acquisition targets. It seems crazy to me to throw millions of dollars at a company with the hopes that one of maybe three or four megacorp…

Seed and Series A is investment in the people always. They assume if the product doesn't work the team will pivot until they find something that does. It sounds to me like your friend failed to pivot when needed.

Re: How to proceed when you run out of cash, but you still believe?

#59

Post by AndrewKemendo »

I empathize completely with this team because my company was in a very similar situation in 2018. We had two very technical computer vision products, had found traction and a growing enterprise user base but revenues didn't grow fast enough and all of the major companies were entering the market.

We were lucky enough to find an acquisition off ramp last year but all of the feels are the same.

The big takeaway I learned is, if your differentiating product/service could be classified as a feature (which most ML or CV products are) inside a platform or application, you'll be run over by the major platforms who rebuild your product/services inside their platform.

Your only hope is that your team/data/IP is so far ahead and the acquiring company can't build what you're doing in-house more cheaply than what you're willing to sell for. Unfortunately it seems like there are fewer and fewer cases where major players can't rebuild your work more cheaply.

Second, it's excruciatingly difficult to prove the value of your product/service to a potential acquirer because you don't know their metrics, and if you do, you don't know their acquisition strategy. We did an intensive integration of our product with a Fortune 50 retailer, and based on their own numbers showed (using their own A/B tests) that our service provided a statistically significant lift in a core metric that they cared about, in this case paid conversions. Their CEO even talked about it at a public summit. However their acquisitions strategy didn't include small companies that aren't major strategic partners (Only >$200M+ acquisitions).

The worst part here is that, the founders (like I was) are absolutely in love with the technology and how amazing it is. The problem is, from a business perspective, that basically doesn't matter. You could be doing the most amazing work in NLP token inference, but if the product doesn't fit perfectly as an acquisition and it's not so compelling as to build a huge platform around, it's probably going to fail.

I wish it weren't the case, but it leaves me questioning what the value of doing really hard technology is as a startup. It seems clear that the most financially successful startups aren't solving fundamentally hard technology problems until they get to scaling something with broad product market fit.

Re: How to proceed when you run out of cash, but you still believe?

#60

Post by a_band »

dwrodri wrote: post #26

As someone who is interested in one day starting my own business, I have nothing but respect for someone who has the guts to follow through with that and pursue their vision. That being said... why did you (or if anyone else can chip in) decide to chase funding when you didn't have a business model? Maybe I'm being naïve here, but isn't it kind of crazy to raise 3.5M in funds for a business that has no plan but to be…

> Maybe I'm being naïve here, but isn't it kind of crazy to raise 3.5M in funds for a business that has no plan but to be acquired by someone else?

Not exactly. A lot of startups can function as R&D for larger tech companies: Big tech companies have lots of money but aren't great at innovation. They might spend 10s of millions of dollars just to get a lesser quality version of what they could own if they just bought the best startup in the space. This is why companies with $0.00 revenue get acquired all the time. It's a simple calculation: will it be cheaper to buy or build this tech? For many companies it's cheaper to buy.

That being said, Chicisimo is in a very tough situation. The problem with their strategy is:

1. They have to be acquired or they'll go out of business. This is a terrible negotiating position to start from. There is no walk away power. If I was an interested buyer, why wouldn't I offer an insultingly low price? How does $100k to cover legal costs and a nice signing bonus to your employees sound? Do you have a better option?

2. They need a buyer who needs their experimental technology. This is what's called a "strategic acquisition". And they are almost impossible to engineer from the startup's position. The chances of a finding company with a lot of cash with an exec who wants experimental tech enough to spend a decent amount of money on it are almost certainly zero. If they haven't attracted the attention of a buyer by now, it's unlikely that they'll become more attractive now that they're about to fail.

Having been in this situation myself, it is so helpful to have some revenue to fall back on. That way you can demonstrate that the business is worth something.

I wish them the best of luck. Hopefully they pull something out here but the chances are low.

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