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Slideshow: Venture Capital’s Biggest Flops

Solyndra’s venture investors stand to lose hundreds of millions with the solar company’s bankruptcy filing. But while that stands as one of the largest venture losses to date, it’s certainly not alone.

At peHub, we culled through twenty years worth of venture funding records in the Thomson Reuters database to find some of the largest recipients of venture funding that never made it to exit. It’s not a comprehensive list – the data includes companies classified as defunct or bankrupt, but does not include the scores of VC-backed companies that quietly sold at fire sale prices.

The common thread? I hate to over-generalize. But if I had to say, it would be that the biggest VC-backed failures tended to be companies that received the largest funding infusion at the peak of a hype cycle for that particular sector. Heightened competition means heightened pressure for outsized rounds to stay a step ahead of the pack. That strategy works well when it works (i.e. with Amazon.com) but often backfires as well.

Click through for a list of ten of the biggest busts, including a look at their venture backers and explanations of what went wrong.

[slideshow]

[slide title=”No. 10: SubmitOrder.com”]

Location: Lewis Center, Ohio

Business: Provided e-commerce outsourcing services.

Venture backing: Raised $227 million between 1999 and 2001 from backers including The Barksdale Group, Amadeus Capital Partners and Silver Lake Partners.

What went wrong: Growth failed to meet optimistic projections.

[slide title=”No. 9: Chorum Technologies”]

Location: Richardson, Texas

Business: Developed optical switching components for communications equipment.

Venture backing: Raised $215 million between 1996 and 2001 from backers including Austin Ventures, Amerindo Investment Advisors, Azure Capital Partner, Bowman Capital Management, CenterPoint Venture Partners, Crown Advisors International, Fidelity Investments, InterWest Partners, J&W Seligman, Octane Capital Management, Rho Capital Partners, Sevin Rosen Funds and Sycamore Ventures.

What went wrong: Valuations for all things related to optical networking went hog wild during the dot-com bubble, despite the fact that most startups were far, far from profitability. Enthusiasm for the sector – and investment dollars – dried up in the dot-com bust.

[slide title=”No. 8: Kozmo.com”]

Location: New York

Business: Service that enabled consumers to order takeout, movies rentals, and other convenience items online, and then have them delivered in under an hour.

Venture backing: Raised $263 million, principally in 1999 and 2000, from Oak Investment Partners, Softbank Capital, Starbucks, Amazon.com, Flatiron Partners, J&W Seligman, J.P. Morgan and Triad Media Ventures.

What went wrong: It lost a lot of money. Its Wikipedia entry blames the company’s downfall in part on Kozmo’s decision to continue to use the same business model of free delivery no matter what the price, even if it were a $.50 pack of gum or candy bar.

[slide title=”No. 7: Amp’d Mobile”]

Location: Los Angeles

Business: Provided a mobile phone service featuring entertainment options, including music and gaming.

Venture backing: Raised $276 million between 2005 and 2007 from backers including Columbia Capital, Highland Capital Partners, Intel Capital, Redpoint Ventures, Rho Capital Partners, TELUS Ventures, Tudor Ventures and Vivendi.

What went wrong: Amp’d had overly optimistic forecasts for adoption by paying subscribers of video and other entertainment offerings for mobile devices. The company filed for bankruptcy in 2007 after experiencing credit and collection problems with nearly half its customer base, according to a Businessweek article.

[slide title=”No. 6: Relera”]

Location: Englewood, Colo.

Business: Provided collocation and managed Internet access services.

Venture backing: Raised $327 million, mainly in 2000, from Telecom Partners, Nautic Partners, Morgan Stanley, Exodus Communications, Crescendo Venture Management, Columbia Capital and Broadband Venture Partners.

What went wrong: The whole data center industry got torpedoed in the dot-com bust. Too bad Relera couldn’t have held on another decade and re-branded itself as “cloud services provider.”

[slide title=”No. 5: Teledesic”]

Location: Bellevue, Washington

Business: Founded in the 1990s to build a constellation of low-earth orbiting satellites to deliver broadband Internet service.

Venture backing: Raised $373 million in 1998 and 1999. Mostly, Teledesic backers were wealthy investors, including Craig McCaw, Bill Gates and Saudi prince Alwaleeed bin Talal, as well as Microsoft and Falcon Fund.

What went wrong: Teledesic was one of several failed low-earth orbiting satellite businesses. Others include satellite phone service providers Iridium and Globalstar. Teledesic’s planned network, however, never really got off the ground, as financing for a multi billion dollar satellite endeavor dried up following the dot-com bust.

[slide title=”No. 4: VeloCom, formerly known as Wireless Local Loop Int’l”]

Location: Englewood, Colo.

Business: Operated a broadband communications service focused on Latin American markets.

Venture backing: Raised $436 million between 1998 and 2000 from backers including Telecom Partners, TD Capital, Qualcomm Ventures, Pamlico Capital, Northwood Ventures, Intel Capital, Formus Communications, Eagle Ventures, Dolphin Equity Partners, Crescendo Venture Management and Centennial Ventures.

What went wrong: Another casualty of the great telecommunications investment bust.

[slide title=”No. 3: Digital Access”]

Location: Bala Cynwyd, Penn.

Business: Operated fiber optic broadband networks in four Midwestern cities, with plans to provide phone, cable and high speed Internet services.

Venture backing: Raised $490 million between 1999 and 2001 from backers including Spectrum Equity Investors, Providence Equity Partners, Norwest Venture Partners, Nautic Partners, M/C Venture Partners, Goldman Sachs and Pamlico Capital.

What went wrong: Digital Access cited delays in approvals and regulatory conditions, such as those proposed for Kansas City, which would have required it to lay extra cable to sell to other providers, according to the Philadelphia Business Journal. Plus, just about every fiber optic broadband infrastructure either went bust or nearly did during the same period, as advances in telecommunications networking allowed more data to be sent over a single strand of fiber, thus diminishing demand for additional fiber networks.

[slide title=”No. 2: Formus Communications”]

Location: Denver

Business: Provided connectivity services in several European countries.

Venture backing: Raised $548 million between 1999 and 2001 from backers including Centennial Ventures, Telecom Partners, Crescendo Venture Management, DLJ, HarbourVest Partners, Intel Capital, Spectrum Equity Investors and Northwood Ventures.

What went wrong: The company filed to raise $250 million in an IPO but withdrew in late 2000, citing “current market conditions.” Subsequently, it filed for bankruptcy.

[slide title=”No. 1: Solyndra”]

Location: Fremont, Calif.

Business: Maker of thin-film photovoltaic panels for rooftop installation.

Venture Backing: Raised close to $1 billion between 2006 and 2009 from backers including U.S. Venture Partners, Redpoint Ventures, CMEA Capital, Rockport Capital Partners, Credit Suisse, Kohlberg, Kravis Roberts, Madrone Capital Partners and Virgin Green Fund.

What went wrong: The solar industry has been in turmoil this year, Reuters reports, as a glut of panels has sent prices plummeting 25 percent. Manufacturing capacity expanded just as government austerity measures in Europe eliminated subsidies and undercut demand. Solyndra cut prices to try to compete but said in court papers that it was unable to match the extended payment terms offered by foreign competitors.

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