The failure of the Secret, tell us don’t work for the traditional model of vc fund

note: hunting cloud Secret is an anonymous social App quickly, to attract capital, but in the establishment of sixteen months later, the company went bankrupt, but also caused a start-up venture capitalists of heated debate. Both investment and the investment, it seems that all begin to question of risk investment in the future, because of the Secret case tells us that traditional model of vc has been broken, be badly in need of repair. The following is a report venturebeat, translated by startup state:

from the point of view of VC favorable

the vc help Secret raised $35 million, investors are the industry of the famous “the higher-ups”, including Google ventures () is the first Secret of investors, Kleiner Perkins Caufield & amp; Byers, Index Ventures, RedPoint Ventures, as well as a number of well-known angel investors, such as Marc Andreessen, Hollywood actor Ashton Kutcher (jobs), and so on.

after the acceptance of such large investment, Secret lasted for 10 months of crazy, but soon their heat began to cut. In desperation, the App is trying to reverse the disadvantage, founder of the Secret to redesign its own App application interface, hope to be able to fight against other competitors, including instant messaging applications Yik Yak, Whisper, as well as Snapchat, but the result is of no help.

the Secret of the rapid rise and rapid decline, show the wind investment gold sometimes really very effective, but sometimes useless, at the same time also shows that venture capital is often the key to the success or failure of the business.

Secret and traditional financing model

Secret tradition the vc investment way, this way is started by an entrepreneur, we call him Jim, Jim is a friend, named Jack, Jack happened to several relations are good friends, they are working in a venture capital company. Jack introduce Jim to the vc, soon, Jim started their own financing way.

and for Secret this case, the above this kind of financing way, in the real world is slightly different. Secret founder David Byttow and Chrys Bader before two people are working in Google, it makes them have certain advantages, after all, they contact with Google ventures are easier than others. But Google ventures is one of the earliest investors in Secret, even they didn’t have a “road”.

analysis and related questions

in fact, there are many investment failure before the Secret, and to be sure, there will be more investment failure after Secret. But the Secret why the case is different? Or, perhaps we should ask what makes Secret as a case, the problems of risk investment mode? The answer is that when the risk of such a large amount money into a startup, after Secret obviously has been holding the god. As Byttow said. “unfortunately, at that time the Secret and my first entrepreneurial vision is different, so for me, for investors, as well as for our whole team, I think close Secret is a right decision”. However, B yttow rhetoric is that we have several questions:

problem a: in the above statement, seems to communicate a very obscure information, does that mean because vc problem between each other, led to the vision from the direction of the original Secret? In fact, the Secret in a short span of three months, they won two rounds, a total of $35 million of investment, such an innovative and promising business concept would be so quickly fall, indeed be shocking.

by rights, with such a huge investment support, even if there exist some problems in the startup, but as long as you have the correct leadership and product, enough to recover, it is almost impossible to solely because of a few “episode”, let such a strong application become a complete failure.

problem two: Google ventures managing partner Bill Maris is one of the earliest investors in Secret company, why he can’t persuade the Secret of the two founders not to accept an additional $25 million in financing, premature completed its $84 million in A round of funding? Maris is Google ventures with Secret company contact, he said, “we suggest that the Secret two founders do not accept any additional investment, we do not need so much money, tell them if raise so much money in a short period of time, so probably can’t reach the expected in the future.”

question 3: if, founder of the Secret to ignore Maris’s advice, to seek additional financing, and continue to get $25 million B round, Secret can continue to grow after the expansion, their valuations will also be ten times, then Maris can also good?

from the perspective of the entrepreneur

apparently, hindsight is useless. Secret of “death”, however, also let people begin to pay close attention to entrepreneurs on their existing problems, in particular, Secret founders their spending by $3 million shares, as part of their B round:

problem four: due to the many prestigious venture capital support, then deliver the equivalent of $6 million in stock, whether the two founders of mistakes? If a company is easy to make mistakes, if many companies make the same mistake, if you need attention?

problem five: startup founder liquidity of his stock is correct? May be wrong, may also be right. But the founder of the Secret is not the first deliver on their stock of entrepreneurs. Although Secret ultimately did not succeed, but don’t look all they do is wrong, countless other startups probably won’t encounter similar problems with them.

question 6: if a startup founder cash, when companies appear problem, whether to keep the money? Or to put the money back? According to Maris in owned by the New York times Bits blog published a blog post, he thinks that should keep the money. If the startup founder cashed out a certain number of shares, followed by the company has had an explosive growth, and valuations are skyrocketing, let the wind investment make a fortune, the founder of the vc firm will give additional rewards? Obviously not. So, why when the founder of the company failed to return to?

question 7: Secret founder will use their own cash funds with other new startups? Perhaps, they may be able to become a teacher of all other entrepreneurs now, at least can remind them what early venture capitalists can lead to disaster.

to learn

from the ups and downs of the Secret, we can learn some lessons:

a lesson: when it comes to investing, one thing need to know, that’s investment is not a crystal ball, you can’t predict anything. Risk in the investment community, there is an unwritten rules, that is, they will put the money to give their first start-ups have connections, it is a tradition, but it is clear that the Secret case tells us that the traditional way is not effective.

lesson 2: most of the VCS want to control the start-up of the decision-making, it’s easy to let the founders went to the wrong road, such as deviation from the original vision. From Byttow published announcement, we found that they are his teeth closed jointly created his own company, this is also one of the reasons.

lesson 3: we need to question, why venture capitalists want to step in to the company decision-making from the start, because the investor’s investment in a start-up company, not just because enjoy their original vision? Secret has proved that the investors to do so is a wrong strategy.

lesson 4: if a start-up company looking for investment in their own circle, only then in most cases it is not easy to succeed. Venture capital firms to invest in a startup, should be based on two core values: one is a revolutionary product, the second is a start-up company start-up companies should not only have rich experience and professional knowledge, have a clear vision.

finally thinking

the Secret of the company’s failure, some people think it in silicon valley is not a big deal, but is another risk investment failures. However, we should face the problem, because the Secret case shows that the current risk investment mode when the need to change!

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