Today, some of the most important innovations and creations have been developed by different startups. The constant technology changes and their evolution, have been the biggest contributor for achieving this. But the success and industry triumphs are reached just by a few companies, due to the hard beginning that startups face, the management and financial challenges it brings. For having a successful startup and making a great business, it is not enough to have an excellent and innovative idea, it is vital to know how to assume the financial responsibilities and how to manage correctly the resources.
In previous articles, we have seen different bankruptcy cases from different industrial sectors, like oil and gas, technology, sports, fashion, among others. In this post, we will talk about how different tech startups have failed and faced bankruptcy after having an excellent idea, but the deficient management of their economic duties and resources. In addition, we will see how some of them surpassed this critical situation, becoming in successful organizations.
Startups and bankruptcy
Before showing some bankruptcy cases in startups, let’s see some important facts about them, and their failures and success. For 2015, the creation of new tech companies was almost 80% for internet businesses, 15% for Mobile technology and telecommunications and the other 5% for software development, computer hardware, and electronic devices. From this distribution, almost the 70% of the bankruptcy cases have been in the internet sector.
Another significant fact is that more than the 55% of failed startups, reached incomes for $1 million dollars or less, and more than the 70% of dying companies, raised $5 million dollars or less. All these businesses failed not for a bad idea or lack of sells, but for not knowing how to face the financial challenges. This is just a great sample of what we have mentioned: the biggest reason for startups bankruptcy is to take bad decisions in their resources management and financial commitments.
As we mentioned, almost the 55% of these companies, raised $1 million dollars or less, the 14% between $1 and $5 millions, the 9% between $5 and $10 millions, the 8% between $10 and $25 and the rest of the companies more than $20 millions. It is important to highlight that more than the 70% of all these organizations, lived for almost two years, after this time, they died. Only 2% of these businesses lasted 5 years or less.
Knowing these significant insights, then we can show some of these cases, where having a great business idea was not enough for being a successful organization.
Lily Robotics, Inc.
This organization was created in 2013 in Berkeley, California by Antoine Balaresque and Henry Bradlow, two students from the University of Berkeley. This company was considered one of the most promising businesses in the robotic industry, more specifically in the drone’s technology. The main product of Lily Robotics, Inc. was the Quadcopter, a helicopter drone impulsed by four rotors and with a waterproof camera.
After four years of existence, Lily Robotics, Inc., announced its closure for having more than $34 million dollars in debts. In 2017, this organization filed for the chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. After the company announced its bankruptcy, it refunds to their customers the money for the products they bought.
This case is the perfect example of a very talented startup with a very innovative and revolutionary idea, but with a deficient and inadequate resources management. In addition, Lily Robotics, Inc., did not know how to take more advantage of their main product, the Quadcopter.
This internet business was launched in 2012 by the company Mixed Media Labs, with the main idea of being an ad-free social networking and microblogging platform. In that same year, the organization received more than $750.000 dollars in funds for growing the platform. A year later, App.net reached more than 100.000 users and the next year, they created Backer, which was a crowdfunding web model accepting bitcoins as a paying way.
In 2015, the organization had financial issues due to the decrease of its users, making it a non-viable business. In 2017, the platform was closed for not having the enough resources to keep their talent and working components.
This company was founded in 2014 in Austin, Texas by Kash Shaikh, for being an online marketplace to find motivation and training services. This platform worked as a guide for those persons who want to train and book their exercises experiences. After one year of living, Besomebody, Inc. raised more than $1 million dollars, and the next year, it raised another million from different investors.
After three years of existence, the company was closed due to the lack of demand for what it offered. In 2017, it removed its app from the mobile market for having more expenses than incomes.
Related: How to save a distressed start-up by Suzzanne Uhland
* Featured Image courtesy of Startup Stock Photos at Pexels.com