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I know this isn't the craziest startup shutdown story, but wow. At $10MM of revenue they can afford to keep a staff of 50 at a fully loaded cost per employee o

I know this isn't the craziest startup shutdown story, but wow. At $10MM of revenue they can afford to keep a staff of 50 at a fully loaded cost per employee of $200,000. Yet, according to Linkedin they peaked at nearly 200 employees. On top of this, they appear to have raised $36 million three years ago - https://www.weave.works/press/releases/weaveworks-raises-36-million-series-c/ https://www.weave.works/press/releases/weaveworks-raises-36-... In other words they somehow were running at a loss of about 1.5 million a month for three years until their runway "suddenly" ran out today. According to the CEO's linkedin post, they were basically trying to keep up appearances of being a 200 person company until some greater fool bought them out, which appears to have failed. How do you find yourself as Board member or CEO of a company like this and not think to cut expenses a little sooner? Far better to be a growing, profitable 50 person company than a cash-burning Potemkin unicorn.

api 3y ago
Sometimes investors have no interest in anything but a large exit. So it's large exit or bust. Building something stable that grows at a reasonable pace is considered the worst outcome because it both consumes investors time/energy and delays closure of a fund. They're left holding shares that are illiquid. It's perverse of course but it can be something baked into the structure of how VCs and other funds work.
- NavinF 3y ago
  > They're left holding shares that are illiquid More specifically, how much is a SAFE for 7% of a small business worth? If there are no liquidity events it will be impossible for investors to even get their money back let alone outperform SPX
ushakov 3y ago
We don't know all the details. Maybe they had high costs elsewhere or a market insight that made them re-think whether they want to be continuing to operate that business
orsenthil 3y ago
I think, motivation would have been, if they were able to sell themselves as 200 person company, the CEO and Board would gotten a bigger piece of the pie in the landing space.
- bogomipz 3y ago
  As I pointed out elsewhere the 200 person company is not accurate. The OP is quoting something listed as "peak" on Linkedin without even providing a reference. And for some reason everyone is running with that figure. Nearly every tech company had a peak headcount during the height of Covid. Techcrunch generally also has inaccurate tech company numbers in their profiles. Also you can't sell yourself as a 200 person company if you don't actually have 200 people as that would come out immediately in any due diligence an acquiring company would would do on you.
wg0 3y ago
>According to the CEO's linkedin post, they were basically trying to keep up appearances of being a 200 person company until some greater fool bought them out, which appears to have failed. That's probably pretty brutal summary of most of past two decades I guess? Also, had it been bootstrapped, might have a different outcome, could scale down, pivot while staying a small profitable shop.
- girvo 3y ago
  > That's probably pretty brutal summary of most of past two decades I guess? Longer. This has been the main playbook even going back to the '00s!
  - bigstrat2003 3y ago
    Right... So, two decades ago. ;)
KaiserPro 3y ago
> According to the CEO's linkedin post, they were basically trying to keep up appearances of being a 200 person company until some greater fool bought them out, which appears to have failed. Because that is what startups do. 80% of startups that are "successful" follow this pattern You shoot for the moon, if you don't take massive risks, then you won't be rewarded. It sounded like they were about to be bought out or aquihired, but it fell apart at the last moment (It's not uncommon) > Far better to be a growing, profitable 50 person company than a cash-burning Potemkin unicorn. because probably they looked at the pipeline and realised that if they wanted to deliver the features/customer growth they needed, they required 200 people to get there.
- ssharp 3y ago
  "Shoot for the moon" seems like a reasonable strategy when you're making the investment. However, certainly at some point while they were burning through that $36 million it became evident that "moon" was no longer a viable destination. Why wouldn't everyone be aligned with making the adjustments needed to get back to default alive? Something is clearly better than nothing. Now if it got to the stage where the CEO no longer wanted to operate at the reduced scale (and nobody else would take the role) or the product couldn't support itself at the reduced scale, then closure may have been the only option. It's just that the "moon or bust" mentality doesn't seem like something that should be set in stone for the life of the company.
  - streetcat1 3y ago
    Because this is not what the VC wants. The VCs are diversified across many startups and frankly make most of their money from tail event startups in their portfolio (e.g. Uber / Facebook). Since they don't know which startup will be the tail event, they don't want a profitable business, but a max growing business. This is different from the bootstrap model.
    - paulryanrogers 3y ago
      Then why not sell it as a viable business? Or would it be too costly to trim it back and execute the sale?
colechristensen 3y ago
It's not that unreasonable. During the post-covid inflation and high interest rates getting loans and attracting funding got very much more difficult. Downsizing by 75% probably would result in a failure that just took longer. They chose to keep going in attempts of securing that next step and it didn't work so they shuttered. The environment for funding changed and the less attractive startups shuttered, that's what happens. Maintaining a short runway is a vibe, a path towards a big reward or a quick failure. That risk isn't for everybody.
purpleblue 3y ago
Because no one that matters cares about a company that makes $10 million per year, neither the cofounders nor the board. Everyone wants 100x that because they want to become 9 figure wealthy or more. Better to close down, fuck the customers, and then have the cofounders start a new "journey" in hopes of getting that unicorn status and become fabulously wealthy.
- hef19898 3y ago
  I know that you are right, it is just so incredibly stupid.
- great_thanks 3y ago
  i keep reading confounders...
axiak 3y ago
If they received $36 MM in a fundraise 3 years ago, you better believe that those investors put pressure on the business to grow fast or die trying. Those investors are not looking for a somewhat risky medium % return, they're looking for each company to have a small % chance of being a unicorn.
- deleted 3y ago
  [deleted]
- mcherm 3y ago
  So who out there is running an investment fund that's looking to make a much more reasonable rate of return off successful but slowly growing companies? Because I would put money into that fund.
  - nullspace 3y ago
    Assuming you’re asking in earnest I would begin with S&P 600 Small Cap companies, and see how they got their starts. These are all profitable companies with various levels of earnings growth and indebtedness. Also commercial real estate fits your criteria almost perfectly.
  - Negitivefrags 3y ago
    You probably want the kind of private equity funds that do succession transactions. Small slow growing businesses tend not to actually need capital very often, so there isn't exactly a huge market for investing in them. On the other hand, you get a lot of businesses whose owners are getting old / sick of the business. They need somebody to buy them out and install a new management structure. There are a bunch of funds who do things like that. Look for "Private Equity" as a more broad category rather than just "Venture Capital".
burningChrome 3y ago
>> How do you find yourself as Board member or CEO of a company like this and not think to cut expenses a little sooner? I've worked at several startups who never cut costs, meanwhile they're burning through cash faster than an incinerator at the local trash company. I had one company CEO who remodeled our entire offices, got sky boxes for all the local sports teams (there were four of those) and made a point to tell all the devs they're the highest paid startup devs in the city. I found out later, our CEO also had a pissing contest with another startup CEO on the same floor of the building we were in. Both companies had over $200M in VC money, and both were trying to outdo each other with the lavish lifestyles they were living on the investors money. The other company put on a massive "release" party to announce their internet software to the local tech new media. Apparently they blew close 10 $2M on it. Limo's for all the employees to the five star hotel ball room, a red carpet VIP entrance for all the employees like you see on those awards show, some 70's rock band played, and it was open bar all night and they reserved an entire floor of rooms in the hotel where the bash was thrown. Two of the devs told me afterwards, "Dude, totally not my scene, and none of our team were cool with this at all." Less than two months later, both companies ran out of money, quietly shut their doors and closed down. At a bar across the street, we had a group of devs from both companies sitting around lamenting what went wrong, where we were going to next, and reminisce about both companies. We all reached the same conclusion: >> According to the CEO's linkedin post, they were basically trying to keep up appearances
- hef19898 3y ago
  Seems VC backed start-ups are the real lifestyle companies for their founders, doesn't it?
- dgellow 3y ago
  > got sky boxes for all the local sports teams What are those? Is it like a video game sky box, something you somehow attach to your ceiling to create a “sky” environment?
  - arianvanp 3y ago
    They're indoor VIP seatings the top of football stadiums with a panorama view of the entire field. It's usually where the sports commentators sit. Or rich people.
superb-owl 3y ago
No to be pedantic, but payroll isn’t 100% of cost. Plus cash flow issues, sales volatility, probably declining revenue as you scale down…my guess is the headcount should be more like 20-30. And that might not cover their personnel needs if a lot of their revenue relies on services and customer success (which is usually the case for OSS companies)
zx8080 3y ago
> How do you find yourself as Board member or CEO of a company like this and not think to cut expenses a little sooner? It's like playing Super Mario: one life left? Die sooner to restart again. There will be a next startup soon, and saving this one does not worth effort. Besides that, the CEO has probably got his cut already as salary. This cow is done, bring in the next one.
blagie 3y ago
There are many reasons this happens: 1) As a CEO, I want headcount. Being the CEO of a 200-person operation sets me up for better jobs than a 50-person one. Being in high-profile organizations if good too (and when they fail, I can switch jobs). Same for VPs and managers. 2) As a CEO, I want bonuses. Those come from growth. Zero bonus is the same whether the company lives or stagnates. 3) Rationally, in winner-takes-all markets, a lot of this depends on early losses and overspending. If you and I are building eBay, and I get there for $10M and you for $100M in 10% less time running massive losses, you win. A lot of tech is winner-takes-all or winner-takes-most. .... and so on. Except for retirement account holders whose money is being spent, it's almost certainly better to be a cash-burning Potemkin unicorn than a growing, profitable 50 person company.
bogomipz 3y ago
>"According to the CEO's linkedin post, they were basically trying to keep up appearances of being a 200 person company" Where in the linkedin post does the CEO state that? My understanding is that they reduced headcount greatly over the last couple of years and were well below a 100 people. The source of this was a then current employee that my company interviewed in November.
goalonetwo 3y ago
we all know that once you get 36 Million$ of investment, you cannot "just" run a 50 people startup that will have a stable valuation of maybe 100m$. Once you take big investment it comes with the expectation you will get to 500m$ at least. VCs don't want to 2x their money. They want a small chance of 20x.
kjs3 3y ago
Another 'CEO' with "Everything was going AWESOME! Our numbers were great and getting BETTER! Our customers LOVED us! Buuut...we're closing shop, today. Totes sorry, bro.". Not a single mention of "because we managed cash like a drunken sailor and bet the farm on a singular exit event". The spin is making me a tad dizzy.
KingOfCoders 3y ago
Also with AI, the "plan-b" of VCs, which is selling the company as a people asset with a people x M = $$$ multiplier breaks down more and more.
araes 3y ago
Incentives. Lots of incentive to ride the horse to death while the money's still available. You get free stuff, get to live the high life, gain celebrity, get interviewed, make social media posts people pay attention to, get invited to fancy parties like Davos. No bad publicity. Probably get more money on the next startup as a result. WeWork is an excellent example. https://www.nytimes.com/2022/08/15/business/dealbook/adam-neumann-wework-startup.html https://www.nytimes.com/2022/08/15/business/dealbook/adam-ne... In a lot of cases, it seems like the real incentive is "pretend to have a really desirable product, make demo after demo to draw in investment, party as much as you can while pretending to make something, lateral to the next company while claiming external market conditions." Live the Wolf of Wall St. life while the Titanic sinks. Still think the main Pokemon advancement for companies is mostly -> Bankemon -> Casinomon
dfltr 3y ago
> Potemkin unicorn. Thank you for putting these two words together, they're perfect.
tmnvix 3y ago
It's a naive point of view, I know, but I often wonder how a business could function if wages and salaries were considered to be profit. This is clear enough for an individual running a business, or even a family operation. For larger businesses would it be possible without adopting an extreme socialist (or even communist) approach? If so, how would you balance this with the interests of investors/owners (i.e. people that aren't involved in the operation of the business)? Would the businesses be more or less sustainable on average? Does the very existence of outside investors necessitate categorising wages and salaries as a cost?

api 3y ago

Sometimes investors have no interest in anything but a large exit. So it's large exit or bust. Building something stable that grows at a reasonable pace is considered the worst outcome because it both consumes investors time/energy and delays closure of a fund. They're left holding shares that are illiquid. It's perverse of course but it can be something baked into the structure of how VCs and other funds work.

NavinF 3y ago
> They're left holding shares that are illiquid More specifically, how much is a SAFE for 7% of a small business worth? If there are no liquidity events it will be impossible for investors to even get their money back let alone outperform SPX

ushakov 3y ago

We don't know all the details. Maybe they had high costs elsewhere or a market insight that made them re-think whether they want to be continuing to operate that business

orsenthil 3y ago

I think, motivation would have been, if they were able to sell themselves as 200 person company, the CEO and Board would gotten a bigger piece of the pie in the landing space.

bogomipz 3y ago
As I pointed out elsewhere the 200 person company is not accurate. The OP is quoting something listed as "peak" on Linkedin without even providing a reference. And for some reason everyone is running with that figure. Nearly every tech company had a peak headcount during the height of Covid. Techcrunch generally also has inaccurate tech company numbers in their profiles. Also you can't sell yourself as a 200 person company if you don't actually have 200 people as that would come out immediately in any due diligence an acquiring company would would do on you.

wg0 3y ago

>According to the CEO's linkedin post, they were basically trying to keep up appearances of being a 200 person company until some greater fool bought them out, which appears to have failed. That's probably pretty brutal summary of most of past two decades I guess? Also, had it been bootstrapped, might have a different outcome, could scale down, pivot while staying a small profitable shop.

girvo 3y ago
> That's probably pretty brutal summary of most of past two decades I guess? Longer. This has been the main playbook even going back to the '00s!
- bigstrat2003 3y ago
  Right... So, two decades ago. ;)

KaiserPro 3y ago

> According to the CEO's linkedin post, they were basically trying to keep up appearances of being a 200 person company until some greater fool bought them out, which appears to have failed. Because that is what startups do. 80% of startups that are "successful" follow this pattern You shoot for the moon, if you don't take massive risks, then you won't be rewarded. It sounded like they were about to be bought out or aquihired, but it fell apart at the last moment (It's not uncommon) > Far better to be a growing, profitable 50 person company than a cash-burning Potemkin unicorn. because probably they looked at the pipeline and realised that if they wanted to deliver the features/customer growth they needed, they required 200 people to get there.

ssharp 3y ago
"Shoot for the moon" seems like a reasonable strategy when you're making the investment. However, certainly at some point while they were burning through that $36 million it became evident that "moon" was no longer a viable destination. Why wouldn't everyone be aligned with making the adjustments needed to get back to default alive? Something is clearly better than nothing. Now if it got to the stage where the CEO no longer wanted to operate at the reduced scale (and nobody else would take the role) or the product couldn't support itself at the reduced scale, then closure may have been the only option. It's just that the "moon or bust" mentality doesn't seem like something that should be set in stone for the life of the company.
- streetcat1 3y ago
  Because this is not what the VC wants. The VCs are diversified across many startups and frankly make most of their money from tail event startups in their portfolio (e.g. Uber / Facebook). Since they don't know which startup will be the tail event, they don't want a profitable business, but a max growing business. This is different from the bootstrap model.
  - paulryanrogers 3y ago
    Then why not sell it as a viable business? Or would it be too costly to trim it back and execute the sale?

colechristensen 3y ago

It's not that unreasonable. During the post-covid inflation and high interest rates getting loans and attracting funding got very much more difficult. Downsizing by 75% probably would result in a failure that just took longer. They chose to keep going in attempts of securing that next step and it didn't work so they shuttered. The environment for funding changed and the less attractive startups shuttered, that's what happens. Maintaining a short runway is a vibe, a path towards a big reward or a quick failure. That risk isn't for everybody.

purpleblue 3y ago

Because no one that matters cares about a company that makes $10 million per year, neither the cofounders nor the board. Everyone wants 100x that because they want to become 9 figure wealthy or more. Better to close down, fuck the customers, and then have the cofounders start a new "journey" in hopes of getting that unicorn status and become fabulously wealthy.

hef19898 3y ago
I know that you are right, it is just so incredibly stupid.
great_thanks 3y ago
i keep reading confounders...

axiak 3y ago

If they received $36 MM in a fundraise 3 years ago, you better believe that those investors put pressure on the business to grow fast or die trying. Those investors are not looking for a somewhat risky medium % return, they're looking for each company to have a small % chance of being a unicorn.

deleted 3y ago
[deleted]
mcherm 3y ago
So who out there is running an investment fund that's looking to make a much more reasonable rate of return off successful but slowly growing companies? Because I would put money into that fund.
- nullspace 3y ago
  Assuming you’re asking in earnest I would begin with S&P 600 Small Cap companies, and see how they got their starts. These are all profitable companies with various levels of earnings growth and indebtedness. Also commercial real estate fits your criteria almost perfectly.
- Negitivefrags 3y ago
  You probably want the kind of private equity funds that do succession transactions. Small slow growing businesses tend not to actually need capital very often, so there isn't exactly a huge market for investing in them. On the other hand, you get a lot of businesses whose owners are getting old / sick of the business. They need somebody to buy them out and install a new management structure. There are a bunch of funds who do things like that. Look for "Private Equity" as a more broad category rather than just "Venture Capital".

burningChrome 3y ago

>> How do you find yourself as Board member or CEO of a company like this and not think to cut expenses a little sooner? I've worked at several startups who never cut costs, meanwhile they're burning through cash faster than an incinerator at the local trash company. I had one company CEO who remodeled our entire offices, got sky boxes for all the local sports teams (there were four of those) and made a point to tell all the devs they're the highest paid startup devs in the city. I found out later, our CEO also had a pissing contest with another startup CEO on the same floor of the building we were in. Both companies had over $200M in VC money, and both were trying to outdo each other with the lavish lifestyles they were living on the investors money. The other company put on a massive "release" party to announce their internet software to the local tech new media. Apparently they blew close 10 $2M on it. Limo's for all the employees to the five star hotel ball room, a red carpet VIP entrance for all the employees like you see on those awards show, some 70's rock band played, and it was open bar all night and they reserved an entire floor of rooms in the hotel where the bash was thrown. Two of the devs told me afterwards, "Dude, totally not my scene, and none of our team were cool with this at all." Less than two months later, both companies ran out of money, quietly shut their doors and closed down. At a bar across the street, we had a group of devs from both companies sitting around lamenting what went wrong, where we were going to next, and reminisce about both companies. We all reached the same conclusion: >> According to the CEO's linkedin post, they were basically trying to keep up appearances

hef19898 3y ago
Seems VC backed start-ups are the real lifestyle companies for their founders, doesn't it?
dgellow 3y ago
> got sky boxes for all the local sports teams What are those? Is it like a video game sky box, something you somehow attach to your ceiling to create a “sky” environment?
- arianvanp 3y ago
  They're indoor VIP seatings the top of football stadiums with a panorama view of the entire field. It's usually where the sports commentators sit. Or rich people.

superb-owl 3y ago

No to be pedantic, but payroll isn’t 100% of cost. Plus cash flow issues, sales volatility, probably declining revenue as you scale down…my guess is the headcount should be more like 20-30. And that might not cover their personnel needs if a lot of their revenue relies on services and customer success (which is usually the case for OSS companies)

zx8080 3y ago

> How do you find yourself as Board member or CEO of a company like this and not think to cut expenses a little sooner? It's like playing Super Mario: one life left? Die sooner to restart again. There will be a next startup soon, and saving this one does not worth effort. Besides that, the CEO has probably got his cut already as salary. This cow is done, bring in the next one.

blagie 3y ago

There are many reasons this happens: 1) As a CEO, I want headcount. Being the CEO of a 200-person operation sets me up for better jobs than a 50-person one. Being in high-profile organizations if good too (and when they fail, I can switch jobs). Same for VPs and managers. 2) As a CEO, I want bonuses. Those come from growth. Zero bonus is the same whether the company lives or stagnates. 3) Rationally, in winner-takes-all markets, a lot of this depends on early losses and overspending. If you and I are building eBay, and I get there for $10M and you for $100M in 10% less time running massive losses, you win. A lot of tech is winner-takes-all or winner-takes-most. .... and so on. Except for retirement account holders whose money is being spent, it's almost certainly better to be a cash-burning Potemkin unicorn than a growing, profitable 50 person company.

bogomipz 3y ago

>"According to the CEO's linkedin post, they were basically trying to keep up appearances of being a 200 person company" Where in the linkedin post does the CEO state that? My understanding is that they reduced headcount greatly over the last couple of years and were well below a 100 people. The source of this was a then current employee that my company interviewed in November.

goalonetwo 3y ago

we all know that once you get 36 Million$ of investment, you cannot "just" run a 50 people startup that will have a stable valuation of maybe 100m$. Once you take big investment it comes with the expectation you will get to 500m$ at least. VCs don't want to 2x their money. They want a small chance of 20x.

kjs3 3y ago

Another 'CEO' with "Everything was going AWESOME! Our numbers were great and getting BETTER! Our customers LOVED us! Buuut...we're closing shop, today. Totes sorry, bro.". Not a single mention of "because we managed cash like a drunken sailor and bet the farm on a singular exit event". The spin is making me a tad dizzy.

KingOfCoders 3y ago

Also with AI, the "plan-b" of VCs, which is selling the company as a people asset with a people x M = $$$ multiplier breaks down more and more.

araes 3y ago

Incentives. Lots of incentive to ride the horse to death while the money's still available. You get free stuff, get to live the high life, gain celebrity, get interviewed, make social media posts people pay attention to, get invited to fancy parties like Davos. No bad publicity. Probably get more money on the next startup as a result. WeWork is an excellent example. https://www.nytimes.com/2022/08/15/business/dealbook/adam-neumann-wework-startup.html https://www.nytimes.com/2022/08/15/business/dealbook/adam-ne... In a lot of cases, it seems like the real incentive is "pretend to have a really desirable product, make demo after demo to draw in investment, party as much as you can while pretending to make something, lateral to the next company while claiming external market conditions." Live the Wolf of Wall St. life while the Titanic sinks. Still think the main Pokemon advancement for companies is mostly -> Bankemon -> Casinomon

dfltr 3y ago

> Potemkin unicorn. Thank you for putting these two words together, they're perfect.

tmnvix 3y ago

It's a naive point of view, I know, but I often wonder how a business could function if wages and salaries were considered to be profit. This is clear enough for an individual running a business, or even a family operation. For larger businesses would it be possible without adopting an extreme socialist (or even communist) approach? If so, how would you balance this with the interests of investors/owners (i.e. people that aren't involved in the operation of the business)? Would the businesses be more or less sustainable on average? Does the very existence of outside investors necessitate categorising wages and salaries as a cost?