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Ask HN: Shut down a startup despite strong traction?
We are showing strong traction (100k monthly users) but we're struggling to find investors for our pre-seed round. We're first time founders without a big network and the current market downturn makes it even harder for B2C startups to raise money.
Did you ever have to shut down your early-stage startup despite strong traction?
- faangiq 4y agoSounds like you’re not trying hard enough either on investors or revenue.
- cercatrova 4y agoWhat is the startup? Is it something you can run solo and charge money for?
- mrweasel 4y agoI was going to ask something similar. First up, I'm not an investor, nor have I ever started a company, but I have worked with and for a couple of investors. 100.000 users are impressive, but we don't know what the plan for monetization is. Is it ads, data mining or just a straight up you give us money, we deliver a service? What's the cost per user, both in terms of operating costs and acquiring? If the plan is to run ads, then maybe forget founding for now and run it as a fun little side project. Then add an option to people donate whatever they feel the service is worth to them. Donations could be a way to keep the thing going until the economic situation changes or until you find a subscription model that will work. Most people won't donate, but then again, so will donate much more than you'd have been able to charge them.
- bradwood 4y agoHave you considered a friend's and family round? Or opening up a round to you user base as a kind of crowd funding round. The startup I'm at did both of these to good effect. You'll also notice VCs perk up once you've told them you managed to pull that off.
- spyremeown 4y ago>Have you considered a friend's and family round? Is this really a good idea? Not judging, just stirring the thought-pot.
- borski 4y agoIf there is no other available option, yes.
- ALittleLight 4y agoWell, not doing it is always an option. Burning the money of your friends and family may be suboptimal.
- teaearlgraycold 4y agoI don’t think “friends and family” means get your parents to bet their 401k on the startup. It means get your rich friends/uncle to give you money they’re willing to gamble.
- borski 4y agoSure. But it’s not obviously one or the other.
- PeterisP 4y agoOf course there is an available option - simply shut it down. If you aren't really certain of success, then causing friends&family to invest and lose money is much worse than shutting down, that's outright evil. There's nothing inherently good or valuable in the survival of a business - your business surviving is good if and only if it is a valuable, profitable business, and if it is not, then it's wasteful to throw good money (especially good money of people who trust you) after bad. And burning all your personal relationships by acting in this untrustworthy manner to your friends&family has worse long-term consequences than burning a startup.
- 4y ago
- Amy_W 4y ago[dead]
- mkl95 4y agoWhat feedback are potential investors giving you? What are your pain points?
- drx 4y agoApply to YC - it’s perfect for startups with some early traction and no VC network. Even just doing the application is a great exercise. An alternative to VC money is monetize your users and live cheaply while you grow revenue. I shut down a company with really great product-market fit, but a small TAM. I don’t regret it, but I wish I didn’t have to. Real traction is gold.
- pharmakom 4y ago100k mau is hard to achieve. Don’t throw that away. Maybe you set the price too high for investors?
- tsunamifury 4y agoNot to belittle your achievement at all but 100k monthly can mean many things, many of which are not traction. For example what is your growth curve on that, what percentage of those users are paying or have potential to pay, what is your total addressable market. Many of these are the deeper forward facing questions that investors are looking for when investing. Mainly what is your definition of success, is it big enough, and are you actually in the path to get there. Ive burned high $xx million/year at only 10k monthly users because the answers to those forecast questions were good. And got to XXX million users and line of sight to X billion in revenue. However I’ve seen plenty of others who had better initial traction but no real path to a multi billion dollar company so they fizzled. Just food for thought.
- na85 4y agoIt's shitty that the dichotomy being presented here is "direct path to multi-billion dollar company" and "fizzle". Is there no room for small, stable, profitable companies in startupland?
- samarthr1 4y agoBut those are bit target investments for a VC looking for 100x returns no?
- teaearlgraycold 4y agoIf you’re profitable at a small scale there’s always room for you. If you have rich friends you can get seed money that way. But VCs are looking for the big bucks.
- dbbk 4y agoVCs are not always needed though
- PeterisP 4y ago> Is there no room for small, stable, profitable companies in startupland? There is room for them but outside of startupland - a small, stable, profitable company is the exact opposite of a startup, and has entirely different funding and ownership models than startups do. If it's stable and profitable, then it doesn't need investors, and if it's stable and not expected to become huge, investors don't need it. If it's small, stable and "needs investors" because it's not profitable, well, then it has fizzled already.
- snoopy_telex 4y agoYou posted 10 days ago that your startup has failed. What has changed?
- NetOpWibby 4y agoOkay, this is a twist I didn’t see coming.
- bryanrasmussen 4y agowell given it has strong traction but no money another way of describing that might be failed?
- Freddie111 4y agoWe're preparing to shut it down or keep it running on low infrastructure costs. And that's why I've slowly started looking for my next job (and considered the startup prematurely as failed in the context of that post).
- robocat 4y agoIf you want to consider self-funding, watch https://youtu.be/otbnC2zE2rw https://youtu.be/otbnC2zE2rw - there is some great advice. Good fortune.
- ineiti 4y agoFailure is relative - perhaps they decided that there is still some hope. At least I would switch regularly between "oh, let's give it up" and "no, there is still hope" :) Perhaps the "sunken cost fallacy"...
- rasz 4y ago>100k monthly users how many monetized?
- boffinism 4y agoDo you believe, privately, that there's a really great business here? (I don't mean 'do you believe that if enough miracles happen what you have might turn into a great business?') In my experience, that's the question that causes people to ditch a startup despite whatever headline metrics it has.
- dewey 4y agoIs it a business that makes sense to a VC and do you actually need investors? Maybe it could be a nice, sustainable business if you manage to monetize more of the existing user base.
- tiborsaas 4y agoHow much income do you generate? If it's not monetised yet then start doing that instead of chasing investors.
- sillycube 4y ago
- raspasov 4y agoLink to product or website?
- deleted 4y ago[deleted]
- pavlov 4y agoIf there’s any value in your 100k users, you can probably sell it on a site like MicroAcquire: https://microacquire.com/ https://microacquire.com/ Don’t expect a crazy valuation, but anything is better than shutting down?
- buro9 4y agoI shut mine down... crowdfunded a 2y runway (living on scraps) whilst I built a forum platform. We were successful in that we hit all of the numbers we set ourselves and had 50k monthly active users at the end of 2y. We were unsuccessful in that we hadn't pulled in enough revenue to survive early enough, and were reliant on raising a next funding round. That did not materialise in part because we hadn't understood what angels and investors were looking for given their interests, where they were in their fund, their portfolio. We were too late into our runway to learn that lesson. The story is over here: https://medium.com/tech-london/the-journey-of-a-london-startup-what-i-learned-when-my-company-failed-c67acd74b862 https://medium.com/tech-london/the-journey-of-a-london-start... But my tip for you would be to go harder on getting a "No" from investors... it prevents wasting your time on false promises. Also... can you get revenue from those users? I could, but not enough to achieve growth which is what we needed to get the product to a place where it could financially sustain itself in a viable way. I could only get it to a modest lifestyle company that would be in decline instantly without the investment to take it further. I set a hard deadline... we were all in and 100% committed... but when we hit the deadline, it wasn't sustainable, there was no more runway. We'd built something, it was successful by many criteria... but not financially self-reliant and so by the only success criteria that ensures the viability of the company it definitely failed. I don't regret shutting it down, and I took a lot from the experience. The forums we launched still exist and are now up to 250k monthly active users, it runs on a shoestring entirely from donations.
- okumurahata 4y agoHow much are you getting from donations?
- buro9 4y agoAbout $900 per month, which is non-aggressively asked for (a single button on a single website with no pushy messaging - just "buy the server a drink"). The costs are below this, in the region of $600 most months except when TLS certs and domain names roll around. I donate extras throughout the year to causes related to the one website that delivers the donations. I do receive a few other donations from a few other sites based on "pay what you feel it is worth", and those amount to another couple of hundred dollars.
- simonswords82 4y agoWhat is the startup?
- withinboredom 4y agoFuck investors. Set your product’s price and let the customers run away or stay. Then see if it’s enough. Then and only then, if it’s not enough, drop the product. Or, if you really want to keep working on it even if it isn’t sustainable, find investors. In the meantime, kill off your cloud. Purchase or rent bare metal servers and stop paying per minute for shit. You can get 100+ of cpu cores, terabytes of ram, and disk space for less than a few hundred USD a month. Self-host the things you need (garage for s3, longhorn for persistent storage, harbor for Docker images, Loft for k8s management, etc).
- octoberfranklin 4y agoI must concur with this excellent advice. However I recommend undertaking it in reverse order: > In the meantime, kill off your cloud. This will massively reduce the price you charge your customers. Do it first.
- bradwood 4y agoIf you are running k8s all day long, then sure, but if you run a slim serverless stack in AWS with dynamodb, lambda, SNS/SQS, eventbridge etc, you can stand up a substantially complex solution for next to nothing. Source: I am doing it right now.
- presentation 4y agoThat depends on where they're spending money. If their cloud costs are 1/10 their labor costs, then doing that won't really move the needle.
- withinboredom 4y agoA ten percent reduction in costs is huge. In most businesses, you can only move the needle by fractions of a percent (without ruining people’s job security), so being able to get even a whole percent is nice, more than a whole percent is Must Do ASAP. Most of the time (in life, business, and marriage), you succeed/fail in “death by 1000 cuts”, not in huge gains or losses.
- kypro 4y agoIs there a path to profitability near-term? That would give you some time then perhaps you could consider options like taking out a loan instead. It wasn't my startup, but I was the third employee of a small startup which we had to shut down despite having a few hundred paying customers after failing to raise money. In our case though it was clear the business wasn't financially viable. We would have needed something closer to ten thousand customers to have broke even. In your case 100k monthly users seems like quite a lot. You'd only need to be making a few dollars per user to have a decent amount of turnover. I'm guessing this is free service or something?
- muzani 4y agoWe had the same problem. Our traction was actually profit, growing at 30%/month. We had banks calling to offer loans, and investors were red flagging us for not taking loans, lol. It was a lot easier to sell a profitable company than raise funding. You have an asset, even if it's not profitable. For us, we were able to attract the target market of our acquirers cheaply. We'd get a paying customer for cents, while they'd need about $5 of advertising costs for the same customer. So you could probably sell yours as a marketing channel.
- quickthrower2 4y agoWhy didn’t you take the loans out of interest?
- muzani 4y ago1. Religious reasons. Bank loans were usury, VC investment was not. Probably a legitimate red flag, but it's why I got into it. 2. Primary goal was runway, or rather paying our salaries. Loans make it... complex. We'd have accelerated growth, but it would still be in that spot of not feeling right about paying our own salaries. If we had to take a job and do it on the side, it would basically be game over as we couldn't have the focus to grow the startup. 3. Loans put a lot of pressure on profitability. For context, we were a recipe app that sold ingredients. First stage has us take about 3-7% margin, but it was all handled by a partner. Second stage had a 7-30% margin, ops handled internally. We were going for manufacturing of ingredients at a 50%-90% margin. However, that would have locked us far away from being software based. We'd have to start selling to pharmacies and such to make up for the minimum order. That kind of messes up the company DNA. The ideal end goal for a startup isn't really to become FAANG. That has its prestige, you call yourself a billionaire, and yet all your money is tied up in stocks and you can't really spend it. The ideal end goal is to make something valued at a few billions and sell it to some company that makes like $10B/quarter. Most of those large companies don't have the DNA to hire people and get high growth. So the irony was that taking loans would make us less attractive to VCs. We'd be a small-medium business group, which is less ideal than just taking a job at a Fortune 500 or something.
- cheerioty 4y agoMate, I've read the whole thread / comments, but still couldn't figure out what you're actually doing. Is it possible that you for some reason just make it unnecessarily hard for people to discover/invest in you? I'm a serial founder, business angel, and LP of two larger funds... But man, where's your pitch? I've tried to find it by looking into your submissions, and all I found is "New Molecule Discovered That Strongly Stimulates Hair Growth ... Are you seriously looking for investment or just messing around and wasting your and other people's time? If it's the former, then please (with a cheery on top), tell us what you do and at what terms you are raising.