Another Look at VC-Backed Busts

Updated Lots of talk today about VC-backed busts, after InsideCRM published its list of the 20 Worst Venture Capital Investments of All Time. I tried getting comment from some actual VCs who backed companies on the InsideCRM list, but have so far been unsuccessful (I know, real shocking). While we keep waiting, here is a file of every single VC-backed bomb on record in the Venture Economics database: VCBusts.xls

It includes how much money each company received, and its Top 20 diverges quite a bit from what was compiled by InsideCRM. For example, our top dog is Formus Communications Inc., which raised over $500 million between 1996 and 2000. InsideCRM “leader” Amp’D Mobile doesn’t appear on our chart until number 7.

In all, we uncovered 4,300 VC-backed busts that raised over $63 billion in funding. To qualify, a company had to meet three qualification: (1) Raised VC funding between 1990 and 2007; (2) Be based in the United States; and (3) Have since gone out of business and/or declared Chapter 7 or Chapter 11 bankruptcy. Unlike InsideCRM, we did not include companies that were acquired (even if the sale price was a pittance compared to the initial investment). Not because there aren’t hundreds deserving of bust status, but because it made the database work too complex.

In case you’re interested, I also looked at which VC firms had backed the most losers. It’s an interesting grouping, with some selection bias toward firms that do lots of deals. It goes like this:

JPMorgan Partners
New Enterprise Associates
Intel Capital
Bessemer Venture Partners
Oak Investment Partners
Kleiner Perkins Caufield & Byers
Sequoia Capital
Mayfield Fund
Windspeed Ventures
BancBoston Ventures/BancBoston Capital

(Note: JPMorgan Partners has since split into two firms. The buyout/growth equity team became CCMP Capital, while the VC team became Panorama Capital).

Update: I’ve also broke down the entire grouping by industry sector (using MoneyTree categories).

1. Telecom (19.96% in terms of dollars lost)
2. Software (14.75%)
3. Networking & Equipment (11.27%)
4. Media & Entertainment (9.37%)
5. IT Services (8.12%)
6. Retailing/Distribution (5.59%)
7. Consumer Products & Services (5.03%)
8. Biz Products & Services (3.84%)
9. Financial Services (3.44%)
10. Medical Devices (3.03%)
11. Industrial/Energy (3.02%)
12. Semiconductors (3.01%)
13. Healthcare Services (3%)
14. Computers/Peripherals (2.63%)
15. Biotech (2.62%)
16. Electronics/Instrumentation (1.06%)

Here’s the chart: IndustryBusts.xls

Lawrence J. Aragon said on November 20, 2007

An argument could be made that if you’re not on that Top 10 list, you’re not doing your job — which is to take big, calculated risks. There are 5 names on that list that I would not hesitate plowing my 401K into if I were given the opportunity. It’s easy to come up with big VC failures because that’s the nature of the business. Go big or go home.

DvB said on November 20, 2007

…in other words, VCs aren’t all geniuses with the Midas touch? And perhaps business plans, financial modeling, projections and metrics don’t mean as much as they suggest. as InsideCRM writes about a bust: “Despite being measured as the ‘benchmark against which all other sites are measured,’ eToys ended in bankruptcy.” Go figure.

You can add another one to the list: PayByTouch. A great read from TheAlarmClock: http://www.thealarmclock.com/mt/archives/2007/11/paybytouch_inve.html

Chris said on November 21, 2007

Would be interesting to see by company who the backers were.

Dan Primack said on November 21, 2007

Chris,

I’ll get to that later in the day for the top 20. be too unweildy a file for all of them…

Rafael said on November 21, 2007

Very interesting, but I do know that the data for my old startup, Ecos Technologies was off by a factor of three. Let’s hope that this is not indicative of the accuracy of the entire database. I wonder how others consider the accuracy of data on their former ventures.

Tom said on November 21, 2007

This is a very interesting topic, one thats not discussed enough in my opinion. Just have one major question- where are you getting the data for companies that are now Defunct? I don’t think that these firms are openly providing this kind of information. How accurate is the “bust” data that you have?

David said on November 21, 2007

I think it would also be interesting to see how long it took each company to burn through the funding that it received.

Lindsay said on November 21, 2007

What about best returns of all time? Other than IPO data, is there any way to track that?

Peter said on November 22, 2007

How about a list of the worst IPO’s? Which companies went from public offering to Chap. 11 most quickly? My vote: A poster child of the .com bubble, the Globe.com. The business model was always a mystery.