Take The Interview was a portfolio company of ours that ultimately failed. Below are our learnings.
Cash inefficiency.
When we invested, the company had about $60K in MRR but was burning $170K a month. It was an oversight on our part to get involved with a business that burned nearly $3 for every $1 of revenue. Frankly, back in 2014 when we invested, we didn’t have the respect for cash efficiency that we have now — we’re actually embarrassed by it. Today, we wouldn’t look at any company burning more than $0.50 for every $1 of MRR.
Churn became an issue, and we blamed the customer.
At the time of investment, the company was retaining and renewing customers at a nice rate. Over time, however, churn picked up and net dollar retention fell from 100%+ to 85%+. Instead of looking inward and fixing the product and processes, the company blamed the customers. They cited things like lack of buy-in, loss of an internal champion, mergers, acquisitions, and so on.
We made excuses for every churn reason.
Instead, we should have asked whether we were selling to the ideal customer, whether they were evangelizing the product with senior management, whether we could onboard more users at each customer to get stickier, etc. As a result, churn was never truly addressed.
The company avoided layoffs.
It was obvious we needed to cut expenses and do one real round of deep layoffs. Instead, the plan became to “grow out of the burn.” We never did. There was too much concern about maintaining the culture.
A cofounder leaving should have resulted in a total restructure.
Eventually, out of frustration, a cofounder left the business. At that point, the board should have questioned everything the CEO was doing — but the moment was allowed to pass. The cofounder didn’t ring the alarm on the way out, and the board didn’t dig beyond what they were being told.
A merger didn’t work.
With so many mistakes made along the way, the company was forced to merge with a larger but similarly weak peer. Given our inaction to fix things sooner, the merger was the least-worst of many bad options. But smooshing two underperforming companies together does not make a strong company. We’ve never seen that work. Ultimately, all the equity holders lost everything.
Looking back, we made some obvious mistakes at the time of investment. During the investment, both management and the board were too complacent and not honest with themselves about the state of the business. We blamed the market and the customer instead of evaluating ourselves. We didn’t make changes fast enough, and when we finally did, it was too little, too late.
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