Tech companies you shouldn’t have invested in – the biggest failures of 2023

A look at startups that managed to reach billion-dollar valuations but ended up in economic ruin. Unmanned taxis, Indians, swans and investor scams await you.

Hello!

My name is Alexander Stolypin and I have been a professional investor since 2011. The failure of any company can happen suddenly, destroying reputations, multibillion-dollar investments and ultimately depressing stock prices. There is no insurance against this, and it cannot be foreseen: this is why among investors it is not customary to put all their eggs in one basket, even if there is great confidence in the asset.

Such phenomena are called black swans: when a series of random circumstances leads to a sharp turn – we will talk about some of these situations in this article.

In general, I selected companies that suffered complete failure last year: some of them are now worth tens of times less, and some have gone down in history forever, leaving scars on the hearts of investors.

Actually, let’s start with chapter 1 – black swans.

Cruise – last 6 meters

Cruise is an American startup developing self-driving systems. After growing rapidly and attracting significant investment, they encountered serious difficulties that led to collapse in 2023. And this is probably the loudest fap of all last year.

Launched as a self-driving technology startup, Cruise aimed to revolutionize the transportation industry. Its systems offered the prospect of fully automated travel, promising to reduce accidents, ease traffic jams and streamline urban traffic.

The main reason for the company’s failure was the fatal accident of an unmanned vehicle.

In San Francisco in October, a woman was hit by a Cruise car. She was hit by another driver – the woman jumped to another lane where the drone was driving, which in turn dealt a second blow and dragged her under it for about 6 meters.

An analysis of the tragedy revealed that the car was unable to correctly locate the woman after the collision and incorrectly identified the part of the car that struck. An error was also made in determining its own location, which is why the car did not immediately begin braking, which led to the death of the pedestrian.

After the accident, all operations in San Francisco were stopped for an internal investigation, and the transportation regulator began its review. During its course, a recording of the moment of the accident from drone cameras was requested, which Cruise was not provided, which together caused a stir in the media, and then a negative reaction.

Before the accident, Cruise had problems with control: in one case, a whole bunch of their drones gathered at one point in the city, refusing to accept orders, in another, the car stood across the road, blocking traffic.

However, the company remained one of the leaders in the field of unmanned public transport. They were generously financed by investors, and the fleet in San Francisco alone numbered several hundred cars and was quite in demand – people trusted this type of transport. Overall, there is a huge bet on the drone industry.

The chain of events literally destroyed a reputation with a long history. And even though this company did not place shares on the stock exchange (it is a subsidiary of General Motors and directly influences their shares), the example itself demonstrates quite well what a black swan is.

Convoy – Cargo no one needs

An American company of IT solutions for cargo carriers, which de facto went bankrupt in 2023.

In 2015, they developed an application through which shippers could upload information about their cargo and quickly find a suitable carrier – a kind of transport optimizer.

Convoy solved the problem of organizing logistics – traditional coordination of transportation was carried out through telephone/messengers and a bunch of paperwork, which wasted additional time and money. Due to the sluggishness, situations arose with long routes and half-empty trailers that could be filled with cargo.

In April 2022, the startup was able to attract investments in the amount of $260 million (from funds and ventures), and itself received a valuation of $3.8 billion. In addition, JP Morgan provided them with a new line of credit in the amount of $150 million, which indicated the enormous prospects of the project in the eyes of investors.

But already in October 2023 they were overtaken by collapse.
According to the official version announced by the CEO, the company was faced with both an “unprecedented collapse of the cargo transportation market” and a “sharp tightening of monetary policy.”

As a result, the staff was almost completely reduced (1,500 people worked at its peak), without warning, severance pay, and other flagrant violations of labor laws. All cargo transportation operations ceased, and the company became unable to pay debts to creditors.

What happened?

A series of events: first of all, Covid, which significantly increased both demand and the cost of cargo transportation. Carrier companies received excess profits, which collapsed at the beginning of 2022 due to the crisis that began in the industry.

Investments made and money earned were actively spent on scaling the business – new trucks, ships, warehouses, equipment for logistics services were purchased and personnel were hired.

The year before last overtook cargo carriers (and not only Convoy) with a number of problems – demand began to fall, and the industry became saturated with competition. Prices for land and sea transportation have collapsed – no one expected it to be so bad. The crisis and the increase in key rates from the US Federal Reserve were superimposed on top. Investors have stopped investing in the same amount.

Just a couple of factors played a cruel joke, and the startup itself was eventually put up for sale, but could not find a buyer, which sent the technology company with an advanced solution to the outskirts of history.

WeWork – Crash after Crash

The business model revolved around renting large office spaces and converting them into co-working spaces with a mix of private offices, as well as meeting rooms and open workspaces. Spaces were rented out to freelancers, startups and large companies. It was a good alternative to traditional office rental, especially for young and small companies.

In addition, WeWork was promoting WeWork Labs, an incubator program to help startups grow.

The company expanded rapidly, opening spaces literally everywhere, attracting significant venture capital investment. There was aggressive international growth, but along with it, according to all the laws of economics, losses also grew.

And in 2019 there was a well-known attempt to enter an IPO. WeWork’s financial disclosure revealed massive losses, questionable performance metrics and raised real concerns about the sustainability of its business model. Adam Neumann’s leadership was criticized for self-dealing and eccentric behavior – investor confidence was seriously shaken.

Valuation dropped from $47 billion to just 8

The IPO attempt went from potential triumph to disaster. Neumann was fired, and the company was on the verge of survival. Softbank saved the situation, but the company had to significantly reduce staff and focus on its core business.

The guys were still able to get out, and 2 years later they held an IPO, and in general the mood seemed positive, but at the end of 2023 they filed for bankruptcy.

The fact is that Covid happened, which crippled the demand for renting office space: people moved to work at home, and a trend for remote work appeared. Despite the fact that many are now returning to offices, the company’s debts have managed to grow exponentially and get out of control: for long-term leases alone they exceeded $13.3 billion.

And all because WeWork was actually involved in real estate: the business model was based on buying good premises on credit (and at inflated prices), and in 2022 the cost of premises decreased. Loan payments remained the same, and the startup could not cope with its debt load.

The business collapsed literally in a year, without any special prerequisites.

Bird – Wrong Turn

Electric scooter rental company.
It was founded by one of the leaders of Uber with a sonorous surname – Travis Vanderzanden.

As in most of the cases described, the company grew at a rapid pace: the rental geography extended from the USA to the Middle East. On November 5, 2021, they successfully went public through a SPAC (merger with another company for an IPO lite).

But something went wrong: after the placement of shares, their price sharply dropped from $19 to the current 8 cents.

The reasons for this cost behavior are unknown to this day – quite possibly due to the ambiguity of the business itself, the essence of which still raises a lot of social questions, not to mention unclear economic management models.

It is important to note that the micromobility sector is heavily regulated in many countries, which does not hinder such business models. Restrictions on speed, parking areas, maintenance and inspections, etc. In addition, the field is extremely competitive – and the further the market spreads, the more efforts you have to make to capture your share.

Let’s move on to the second chapter – about those who simply deceived investors.

IRL – The most expensive bot farm

A very young company, born in 2018. IRL made an application through which people could organize meetings and events offline. Essentially a social calendar with the idea of ​​making social interactions more real and less dependent on screens and devices.

The concept gained popularity, and when Covid hit IRL, they were not at a loss. They began promoting virtual events such as online concerts, esports events and Zoom parties, partnering with companies such as Live Nation, Ticketmaster, Eventbrite, Twitch, YouTube, TikTok and Spotify. This helped them grow, making virtual events rich enough for the current situation.

By 2021, the company has already become a unicorn. And in 2022 they made a statement that destroyed a seemingly successful business:

We have reached 20 million users
Abraham Shafi, founder of IRL

The statement sounded implausible, despite the successes during Covid – then the number of users increased many times over. Even the company’s employees expressed doubts about this figure, which provoked two events: a series of layoffs (only 25% of the staff) and an investigation from the SEC (US Securities Commission).

The regulator considered that the company could mislead investors. At the same time, one of the employees filed a complaint about dismissal. According to him, he and a number of colleagues were laid off in retaliation for raising concerns about the inflated number of IRL users.

In April 2023, the company’s CEO was suspended for inappropriate behavior. Soon the SEC completed an investigation, which showed that

The real number of users was only 1 million versus 19 million bots with intentional activity

The startup immediately fell into the abyss.

The IRL application was officially closed on June 27, 2023 at 12:00 pm Pacific Time – exactly one day after the results of the investigation were made public.

And there are huge concerns that there are many more such bot farms than we think.

Byju’s – More and more

An educational startup founded in 2011 by a couple from India. It is an online platform with a focus on the American and Indian markets – on it you can receive tutoring services for schoolchildren, and prepare for serious international exams for applicants and students.

During the existence of the company, it bought other startups and platforms for a total of $2.8 billion, which significantly expanded its product portfolio and geographic presence.

The platform was so popular with the audience and investors that it became a unicorn already in 2018. And in 2020 it received decacorn status. Of course, Covid played a serious role here, but it was not the fundamental reason for the company’s takeoff.

Dekakorn is a company with an investor valuation of over $10 billion

Today there are only 43 such companies in the world, which include SpaceX, Epic Games, OpenAI, Miro, etc.

As of March 2022, Byju’s was valued at $22 billion, and the number of users exceeded 100 million, including 6 million Premium subscribers.

And in the same year, the company began to have problems when they were about to go public on the stock exchange – investors noticed problems in management. At the very least, they could not cope with the mass of purchased EdTech projects: their resources were idle, and HR could not cope with the colossal turnover. At the same time, the management did not stop expansion, and continued to buy and buy – for this they even had to go into debt, totaling $1.2 billion.

It also turned out that financial statements were not submitted in 2021 due to the arrival of a huge number of new startups and absolute confusion in the numbers. After the audit, it turned out that the company’s net losses amounted to $570 million – investors sounded the alarm, and the company’s valuation plummeted.

3,000 employees were fired, and Indian regulators began checking the company for aggressive sales (children were forced to take out loans for paid courses, and cunning sales managers even visited the homes of potential lenders), and suspicions of currency fraud arose.

The company’s valuation has fallen at least 4 times, but this is not the limit – at the beginning of 2024 the company is valued at $200 million, which is 1% of its peak value.

The company’s rapid growth was its undoing – it is impossible to manage countless processes when they are not properly established. And, of course, you can’t lie investors. This will sooner or later be revealed, and the consequences will be catastrophic: both for the company and for the reputation of the founders.

The final

Attempts to appear larger than you are, carelessness and the desire to grow as high as possible without a solid foundation – this is how you can sum up the entire selection. Quite successful companies with timely and relevant products eventually began a race for money, to the detriment of operational processes, which destroyed them. Very often, such failures are provoked by investors themselves, giving companies an erroneous assessment – inflated indicators without a thorough fundamental analysis make your head spin, and this is the worst thing for management: not seeing the realities and running ahead of the locomotive, which sooner or later will catch up with the runner.

No amount of successful company performance can guarantee a bright future.

Even if Elon Musk or Sam Altman are leading it. Their tech giants, rightfully considered one of the best in the world, can also collapse at any moment: recently this almost happened to OpenAI due to Altman’s unexpected resignation. Then an internal split practically formed: the lion’s share of employees were ready to leave the company following Altman, which would have ended the history of OpenAI overnight. And only the actions of investors, including Microsoft, were able to save the project.

The same can be said about Elon Musk and Space-X. Investors are investing money there as if fascinated, and there is a justification for this: plans for the colonization of Mars and significant successes with Starship, satellite launches, Starlinks and other commercial things, as well as the reputation of Musk himself as successful serial entrepreneur. Investors are ready to invest, projects are growing and bearing fruit, shares are rising. But on the other hand, his odious behavior, which sometimes becomes manic, can put all success on one card.

It is impossible to guess where a company will stumble, just as it is impossible to predict whether it will stumble at all: no one has yet been able to calculate all the risks. An investor’s only protection is portfolio diversification.

A couple more companies were not included in the article, because they would have been too huge. But I’ll devote a paragraph to each.

Argo AI
He was involved in the development of autonomous driving technologies, like Cruise. It was founded in 2016 with an investment of $1 billion from Ford. The company actively developed and tested its systems on public roads, but faced financial and strategic difficulties, which ultimately led to its closure. Ford and VW (about $1 billion in investments) decided to refocus their efforts on developing driver assistance systems, refusing to further finance the startup.

The main reasons: they did not fit into the market and failed to achieve a breakthrough in technology.

CloudNordic
Perhaps the most force majeure event of all. This is a well-known Danish cloud hosting provider, operating since 2007, which was subjected to an unprecedented cyber attack, during which absolutely all of the company’s data was encrypted. The hackers demanded an inappropriately huge ransom, but management refused to pay it on principle, which led to the complete liquidation of the company.

Main reasons: imperfect security systems.

In 2024, new successes and failures await us, and I would like to believe that examples with such companies serve as a historical lesson for others. As you know, safety is written in blood – and almost the same can be said about running a business. The consequences of the collapse of large companies can reverberate for years – both for founders and employees, and for investors and counterparties.

Alexander Stolypin was with you.
Invest wisely.