The Funded Dead

Exploring the fate of startups caught between dreams and decay.

Hey — It’s Nico.

On March 9, I’m traveling to San Francisco for the first time. I’ll be staying in the city for 3 weeks.

I’m really excited, as SF is the place where most of the things I write about in Failory happen.

I’m considering doing a Failory meetup. If this is something you’d be interested in, reply to this email and let me know!

Btw, I’m still looking for a place to stay. Let me know if you have any recommendations or know of an empty room.

Today’s edition is brought to you by Outverse.

Here’s what I got today:

  • A dive into The Walking Funded Dead, aka. ”zombie startups” 🔥

  • An analysis of the Spatial Computing space 📈

Presented by Outverse

Outverse — Support Docs & Customer Forums for Modern SaaS

In 2022, I built Scouth, an agency connecting Argentinian Customer Experience people with US startups.

This experience made me realize how much innovation was needed in the CX space. Most tools were outdated and put a lot of overload on CX teams — with time wasted managing unintuitive docs and answering the same customer questions repeatedly. 

That’s why I really like today’s sponsoring tool, Outverse. They’re disrupting CX with their self-serve support platform for modern SaaS startups.

Their intelligent support docs and customer forums are augmented with AI, and make it easy for software startups to scale their customer success capabilities and reduce inbound support requests — all while delivering a better customer experience. 

It’s super easy to set up, and you can get your first docs and forum channels live in minutes.

The best part — you can get started now, for free.

This Week In Startups

🔗 Resources

The state of SaaS pricing in 2024.

Ex-Head of Growth Design at Dropbox discusses user onboarding best practices.   

A16z shares what they’re excited about in the AI x Productivity Tools space.

📰 News

Investors try to remove Byju's CEO but he refuses to accept.

Reddit plans an IPO; its files reveal that it paid its CEO $193M last year.

Techstars faces backlash after closing Boulder, Seattle, and Austin accelerators. 

Figure AI to raise $675M for human-like robots.

😮 Cool Stuff

Creative ways to get hired.

Veed’s app got to $1M ARR in 5 months.

An employee onboarding personal deck.


The Case of Zombie Startups

Last week, Greg Isenberg’s tweet went viral. He shared a story about his friend who is running a “zombie company.” This company has raised $3.5M in VC funding but has been struggling to get another round of finance for 12 years. 

This is not a dead company: it does $2.3M ARR and is growing (although not as fast as VCs would like). 

But it is also not a riveting success like other VC-backed startups that are on track to becoming unicorns.

It is in a weird spot: not quite dead, but also not quite alive. Like a zombie.

Isenberg finishes his tweet by stating that “we don’t talk enough about zombie companies.” 

I agree. So, let's take a closer look at what these zombie companies are, how VCs play a role in creating them, and what you can do if you're running one.

Of Unicorns and Zombies

As I have said, this is a story about zombies. But unlike most movies about zombies, this story does not begin with a virus or with the dead resurrecting from their graves. Instead, this story begins in the office of a VC executive.

You are the founder of a small but promising startup, and after weeks of negotiation, you have successfully secured a big round of funding from a well-known VC. 

You are happy, your team is happy, and, most importantly, the VCs are happy because they see in your startup the potential of becoming that rare and elusive creature every VC dreams of: a unicorn.

Months pass, years even, and you find yourself in a weird spot. Your once unicorn-promising startup has lost its potential. 

It is not a dead company by any means. It has enough to cover its expenses, it generates a small revenue, and it might even be growing slowly. 

But it has lost relevance. It is clear now that the company will not be able to achieve the exponential growth VCs are looking for. 

You realize now that the big round of investment you were so happy about a while ago was a bit of a trap. You have become overcapitalized in your boom cycle and are now unable to generate enough revenue to justify your valuation.

Maybe if you secure a new round of funding, you could use the money to get back on track. But VCs are no longer interested in you — they moved on to the next shiny startup and left you behind. 

You have fallen into the limbo. Unable to generate the necessary returns for your investors. Unable to get more funding. But also not completely broke. 

Your startup has been zombified.

Fade Into Irrelevance

It is interesting to me that when we think of startup failure, we usually think of these big dramatic failures that crash and burn spectacularly (you know, the Theranos and Juiceros of the world).

However, most businesses that fail do not do so in a grand fashion. Instead, most failed businesses simply become irrelevant and fade away slowly.

This is especially true for zombie startups. Becoming irrelevant in the VC landscape is particularly easy, so it is worth trying to understand why this fade into irrelevance might happen. Here are some of the main reasons (you can find a more detailed explanation in this great article that analyzes this phenomenon):

  • Lack of Growth: It is no secret that VCs are looking for startups that can grow rapidly and sustainably. Most of the zombie startups have promises of exponential growth in their beginnings but fail to meet these expectations. This can happen for a variety of reasons, like being unable to appeal to a large enough audience or lack of effective management.

  • Fierce Competition: New startups are founded each day. Staying relevant in this sea of new ideas is really tough.

  • Internal Conflicts: Conflicts among co-founders are one of the main reasons for startup failure. Usually, when there is a fight, some of the co-founders might leave the startup, leaving the remaining founders struggling due to a lack of equity or knowledge.

The Cure

So, your startup has been zombified. What now?

In my opinion, there are two paths forward:

  1. Reaching Profitability: Doing everything necessary to finally reach profitability. Forget about getting more funding; that is unlikely at this stage of the zombification process. Instead, focus on breaking even and making a profit. To achieve this, you will have to scale back on costs. Try to automate as much as possible and harness AI to help you cut down your expenses.

  2. Sell Your Zombie: There is no shame in selling your startup and moving on. You can always begin a new project, and as Isenberg says in his tweet: “sometimes starting fresh is freedom.”

Go Deeper

  • Time-boxed startups may be a great way of avoiding building a zombie startup.

  • The Dip is a book that should help you understand when you should quit your startup.

Trend Radar

Your Chance to Build in Spatial Computing

I have already talked about the opportunities in Spatial Computing a couple of times in the last weeks. 

The first time was with the release of the Apple Vision Pro. I gave some ideas for businesses that could be built in this ecosystem and provided some examples of people creating new apps for inspiration. 

The second time was when YC released its Request for Startups, which included Spatial Computing as one of its main categories.

Today, I am revisiting the topic once more. Last week, YC released a podcast episode discussing whether VisionOS could emerge as the startup platform of the future.

Spoiler alert: YC appears to be leaning towards an affirmative stance.

Here's a glimpse into the key points discussed in the episode:

Spatial UI

We are still learning to create good user interfaces for the spatial computing era.

  • Apple has already released its Human Desing Guideline for VisionOS, with resources and videos on creating a good user experience in VisionPro.

  • Most of the apps in the VisionOS ecosystem are still flat and 2D. Developers still have to learn how to use the 3D space properly to unlock the full potential of Vision Pro’s capabilities.

Meta SDK vs Apple Vision SDK:

  • The Meta Quest is mostly designed for gaming, so, naturally, their SDK has really good support for game engines like Unity and Unreal.

  • But building normal apps on the Meta Quest can be painful. Creating a simple app that opens a PDF file can take several lines of code and a lot of work.

  • On the other hand, the Apple Vision Pro takes a different route, emphasizing productivity applications over gaming.

  • Building apps on VisionOS will also be a familiar experience for anyone who has built an IOS app in the past.

Build on VisionOs?

  • The trajectory of VisionOS adoption may follow a similar path to that of the iPhone but with a potentially longer adoption curve.

  • Initially, VisionOS is likely to attract high-end users in sectors requiring dense informational overlays, such as construction and engineering.

  • While the road to widespread adoption may be gradual, the potential for startups to carve out niches and disrupt traditional workflows in sectors ripe for innovation remains substantial.

  • YC sees a promising opportunity in Spatial Computing, evidenced by its recent inclusion of the category in its Request for Startups.

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