IT Cost transparency is a software category built more on marketing and hype than performance and success. It claims to be able to tell the CIO what the cost of “one click of SAP” might be by understanding all the related costs supporting that single click.
If there is ever a story where the VCs got sold a load of crap, this is the one. And they want out in a very big way. Sometimes there are fun endings.
The cost transparency company was almost a raw startup when they asked us to come in and run the Texas and surrounding area. They had multiple people in the area and never landed a single customer. So, again, using our strategy of building storyboards to tell our story and finding the customer looking for us, we went to market.
While how we took a dead territory from zero to the largest producing territory in the history of the company is interesting, it is not nearly as interesting as the VC-side of what happened. This part is really fun.
Sometimes the bad guys actually show you how truly stupid they really are.
And they show you how you can drive valuation so far above what is reasonable by just pulling on their chains. The real story here is how this startup sucked in top-named VC’s while propping up their financials with about every pressure tactic and unnatural act one can use in a field sales organization.
They spent over 60% of their VC money on sales and marketing but could never turn a profit and use revenue to pay bills. It was just Round A, Round B, C, D, E, E+, borrow some dough, then when all else fails, do an IPO in the worst IPO market in a generation.
There is a lesson here. VCs are just as gullible as the old lady clipping coupons who gets ripped by the phone scammer. They are just a little different in how they get scammed.
The VC community is very insular. They talk to each other. They buy and sell to each other. They pass around the names of people to hire, among each other.
So if you build a great story (company performance not as important, the story sells) and you get some of the insiders to buy in, they will bring their buds along.
That is how you have funding rounds that look like the alphabet.
The story here is that if you are going to make the mistake of taking early VC money, go ALL IN and take all you can get, spend it recklessly hoping to build something tangible before it collapses. Take in more funding and more still—spend it on marketing. If it works, you are a genius. If not, who cares?
This is the inside story of one of those unicorns—and it may work out for a while.
Even if it fails, the VCs will call you a hero because they do not want to look bad.
And they will fund you again.
(We cannot name this firm as we may take a short position on their stock.)