A Rare Look Inside A Failed Startup’s Financial


A Rare Look Inside A Failed Startup’s Financial

It is extremely rare for a startup to release their financial statements. Usually everything in a startup is kept hidden from the public. This includes salaries, expenses, profit etc. Typically the only time that the public have any information regarding a startup’s financial is when the startup goes through another funding round. In our article Startups That Didn’t Make it , one of the startups that we mentioned was Everpix. Everpix was a photo sharing startup that had an active and growing user base, good revenue, but the startup just couldn’t convince the VCs to go in for another round. It was forced to close it’s doors on Nov of 2013. A few months ago Everpix released their entire financial statement and all the money they received each round. In addition to that they released all the rejection emails from VCs that they received.

EverPix’s Financial Statements

Over the span of 2 years, Everpix was able to raise over 2$ million dollar in funding. Here is a quick look inside their financial for their funding timeline found on their Github.

October 2011 Convertible Note

Bertrand Serlet and Dave McClure / 500 Startups
$125,000 amount
1 year maturity
5% interest rate
15% discount
$3M cap
November 2011 Convertible Note

Index Ventures (lead), Strive Capital, Dave McClure / 500 Startups, David Williams / 2020 Ventures, Phil O’Brien, Gerald Rimer, Avery Hager, Sol Werdiger, Michael Herf
$675,000 amount
1 year maturity
5% interest rate
20% discount
$5M cap
July 2012 Series Seed

Index Ventures (lead), Strive Capital, Dave McClure / 500 Startups, David Williams, Bertrand Serlet, Gerald Rimer
$1,000,000 amount
Effective valuation of $7.8M post
April 2013 Bridge Note

Index Ventures (lead), Dave McClure / 500 Startups
$525,000 amount
1 year maturity
5% interest rate
20% discount
$10M cap (kicks in if raising less than $4,000,000 at Series A)

As we can tell from the timeline, the startup was able to raise a lot of money all along, but it just wasn’t enough. Here’s a quick look at their cap table.

Owner Equity
Founders 66.43%
Investors 26.18%
Options Pool 7.38%

It is important for early start up co founders to understand this table. Notice how the founders only had 66% and this is before an actual Series A kicked in. Every round you go through, you will lose a chunk of equity and your options pool will increase with it, which means you will own less and less of the startup.

Below is their full financial statement:

October 19th, 2011 – December 15th, 2013 Accrual Basis

Everpix Subscriptions 269,974.47
Refunded Purchases 2,696.78
Vendor Credits 7,451.31
Interest Earned 573.82
Total Income $280,696.38
Bank Charges 1,396.70
Government Fees 8,827.20
Legal & Professional Fees
Accountants 9,251.95
Consultants 272,821.83
General Corporate 85,775.46
General Patent 37,463.52
Immigration 2,215.00
Initial Bridge Financing 27,086.56
Investors Legal Costs 20,722.05
Series Seed Preferred Stock Financing 15,351.23
Public Relations 109,552.34
Office Expenses
Entertainment Meals 2,022.27
Food & Beverages 8,073.03
Hardware 10,981.09
Insurance 2,446.00
Miscellaneous 4,829.51
Rent 95,085.24
Service Subscriptions 5,039.84
Software 2,172.05
Operating Costs
Amazon Mechanical Turk 8,916.75
Amazon Web Services 394,588.35
Google App Engine 7,878.01
Other Cloud Infrastructure 15,699.84
Personnel Costs
Health Care 62,653.68
Miscellaneous 1,442.18
Salaries 832,347.83
Withholding 360,025.20
Taxes 130,486.03
Recruiting 51,836.00
Promotional Expenses 48,007.80
Travel Expenses 30,197.80
Total Expenses $2,665,192.34
Net Operating Income $2,384,224.67

It’s extremely difficult for a startup to control it’s direction when they receive that much funding. As Guy Kawasaki said, “Once you receive funding from investors, your pretty much putting in work for them.” If your startup can’t get another funding round, then it could be in deep trouble. It is very unfortunate that Everpix was unable to find a home. In addition to all the financial statement that they released on their Github, Everpix also released a bunch of rejection emails sent by VCs. Here are some of them from their Git:

[2 meetings with multiple partners] Thanks for taking the time to meet with more of the team this week. We had a pretty thorough review and discussion over the course of the last several days and came to the conclusion that we are going to pass on the investment opp. You guys seem to be a spectacularly talented team and some informal reference checking confirmed that, but everyone here is hung up on the concern over being able to build a >$100M revenue subscription business in photos in this age of free photo tools. Its totally unclear, for sure, but I haven’t been able to get enough momentum behind it with the team.
[1 meeting with 1 partner] It was great to meet you and get an overview of everpix. I love what you’re working on. I’m going to discuss today with my partners and follow up… [Never heard back]

[1 meeting with 1 partner] I’ve had a chance to chat internally, and I think we’re unfortunately going to pass on this round. While I think the technology and product looks very promising, we aren’t ready to place a bet in the space. Would definitely love to stay in touch as you build out the company and chat again when you’re next raising funding. Best of luck closing out this round and scaling up the company! [2nd email after asking for more details] A large piece was really just the historic difficulty in monetizing online photos. Obviously you have built-in monetization to start with, which is hugely helpful, but there was skepticism about that allowing a truly large revenue stream. We would have preferred generally to see larger user traction for a Series A for a consumer service, but that’s not really a deal breaker, just something that makes it tougher to decide to do.
[1 meeting with 1 partner] I enjoyed meeting yourself, Kevin, and Wayne. You three form a very impressive team for sure. I did talk with my partnership about you guys and Everpix. The reaction was positive for you as a team but weak in terms of whether a $B business could be built. My partnerships reaction thought the product idea was a good one but didn’t see how to build a standalone company that could be a $B company with $100M of revenue. Because of that lack of clarity on our side, I have to bow out.
[1 meeting with 1 partner] Got a few friends to try as well and just collected everyone’s feedback.
It is pretty cool: fast; stylish and minimal photo display; Photo stored uncompressed; easy import; good price.
“Moments” was a miss for most people. It was perhaps more frustrating. For me, I just want to organize myself for a bit and then let you take over. I couldnt do that as the only dimension now is time. I assume more will come: like tags and labels or folders. For others, it is frustrating if you already know which photos you like best. One friend uploaded all of his 2012 and 2013 photos, and unfortunately the sys did a poor job of picking his favorites. Similar experience for others.
Some other comments: captions/titles embedded in EXIF data do not get displayed; some of the automated feature analysis is wonky: for example, snow-covered cliffs at Sugarbowl are labeled as “54% likely to be a city”. no developer API? All agree a lot of these seem to be immaturity. Great job getting it going!!
As for [our fund]and me, I like how the trend is heavily in your favor. Massive number of pics and storage are issues for users. I am surprised by how slow the incumbents have innovated. I wonder if it is appropriate to scale back the product promise a bit and offer something that is more mundane as faster tagging and filing vs super smart AI. The “moment” value prop will take time to perfect and using that as your lead might set the expectation too high. I wonder whether that actually impede vs accelerate conversion. I also want to explore more about how everpix re-think on conventional wisdom and challenge commonly held assumptions on pic space. So, that’s my .02. Hope it helps. Will check back with you in six months. Thanks so much for taking the time to connect.
[2 meetings with 2 different partners] They said they’re passing because they want to see first proof we can build a product that’s attracting to more than the DSLR crowd, and we have a way to convince mobile users to use our system to store & browse photos (and therefore reach the billion dollar company target).
[1 meeting with partner] He said that we have very impressive tech but he couldn’t invest right now as we don’t have our marketing story defined.

What Did They Do Wrong?

Everpix went through a long run. If you looked through everything including their founding team then you should be able to determine that they didn’t really do anything wrong. They had increasing revenue, registration, subscription, and uploads. Everpix had an extremely powerful team from all background, but this is what occurs in startup, VCs lose interest. Without funding there was no way it could have afforded it’s payroll, expenses, and consulting fees. Here are the graphs to their increasing revenue and subscribers.

everpix financial

everpix financial

everpix financial

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