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VC Fyre and Fury: The greatest startups that never happened

The Fyre Festival fail has attracted mass attention (and wrath) on social media following the release of revealing documentaries on Netflix and Hudu last month.

While the Fyre Festival was a one-off event, expensive start-up failures are not.

Here’s a few other startups that were also more smoke than fire…

Juicero: The juicing unit with power of two teslas.

In 2013, Doug Evans had a vision – to deliver fresh, gourmet juice to the masses. Enter – ‘Juicero’.

For around $US400 customers could purchase a wi-fi connected, aesthetically beautiful state-of-the-art, juicing machine.

The Juicero model was similar to Nespresso’s in that once you bought the juicing unit you could buy compatible Juicero juice packs.

The juicing unit was declared by Evans to harness enough force to ”lift two teslas” and crushed Juicero packs of diced fruit into fresh pressed juice.

Juicero successfully raised around $US120m from the likes of Google Ventures and Kleiner Perkins.

All was seemingly peachy until 2017 when Bloomberg released this video which embarrassingly proved that the juice packs could be crushed using bare hands:

Video by David Nicholson, Henry Baker. Source: Bloomberg

Shortly after the video was released Juicero tried price cuts and a few marketing ploys, but ultimately it would not recover from the ‘bad press’ and the company announced it would be shutting down.

Guvera: $AU180 million raised and a blocked IPO

To a more local example: Guvera.

Founded in 2008 on the Gold Coast, Guvera offered a music and entertainment streaming service. It was founded only a few months after (the now market-leading) Spotify launched in Europe.

The company is believed to have raised more than $AU180 million from investors. Its capital came largely from thousands of ‘mum and dad’ investors, investing through their self-managed superannuation funds on the recommendation of their accountants.

At its height CEO Darren Herft claimed the company had over 16 million subscribers however reportedly negligible revenue seemed to put off further funding from private equity funds.

In 2016, Guvera, seeking to list on the ASX, printed a prospectus to investors who were being asked to invest $AU40 – 80 million in the company, valuing it at up to $AU1.3 billion (a 1000x + revenue multiple for the company generating an alleged $AU1.2 million p/a in revenue!).

The investment community rallied against the IPO voicing concerns about unsustainable losses and meagre revenues. Its long-awaited listing on the Australian share market was blocked by the Australian Securities Exchange and following this blow, the streaming app stopped operating in 2017.

Questions have since been raised about where exactly all the funding went, the conduct of executives, and the possibility of class actions by investors – certainly not music to investors’ ears…

Theranos: a VC bloodbath

One of the most infamous company falls has to be Theranos.

Founded by Stanford drop-out Elizabeth Holmes in 2003, Theranos was heralded as one of the darling new-wave companies of the startup boom with a whopping $US10 billion valuation at its peak in 2013 and 2014.

In 2015 Holmes made the front cover of Forbes Magazine, listed as the world’s youngest self-made woman billionaire, worth an estimated $US4.5 billion…

Theranos had a vision for a blood test that required a finger pinprick and only a few drops of blood to complete. No large needles, or vials of blood.

The company seemed to have it all… the prophetic founder, the biblical vision and more VC cash than it knew what to do with. But in 2015 the Wall Street Journal broke a story raising doubts about the veracity of the company’s blood-testing claims.

After years of escaping any real due diligence and scrutiny (due to company secrecy, misrepresentations and deception), the company was finally challenged. It has since faced a string of legal and commercial challenges from medical authorities, investors, regulators, state attorneys general, patients, and others.

By June 2016, it is estimated that Holmes’ personal net worth had dropped from $US4.5 billion to virtually nothing; and in September 2018, it was announced that the company was being wound up. It is reported that investors have lost nearly $US1 billion in the company.

Holmes and former company President Ramesh “Sunny” Balwani are currently facing criminal charges, and two documentaries as well as a feature film (Ft J-Law) about the Theranos scandal are expected to drop this year…

Don’t get burned by a Fyre: Lessons learned

Billy McFarland may have taken his investors (and party-goers) on a rough ride, but he’s not the only one.

Lessons for founders on what not to do are aplenty, and investors the world over will hopefully share a greater appreciation of good old-fashioned due diligence…