Phoenix Phenomena and the Unicorn Bubble
My brother is the smart one in the family.
Unlike me, who only flirted with the idea of going to law school, he did the time and got the degree. Unlike most law grads he didn’t go to a firm or join the in house legal team at a big company, he joined a startup servicing the legal market.
The company he joined, Serengeti Law, had an interesting history. Funded during the dot com boom, they’d taken in tens of millions of dollars in funding to build out an ambitious platform to disrupt the legal world. When the dot com dollars dried up and the sector fell out of favor with VCs, there was a decision to wind the business down and sell the assets at auction.
The founders didn’t like the idea of walking away from the business they’d worked so hard to build, so they made an unusual decision to hold as much of the team together as they could and buy the assets at auction.
Millions of dollars of developed technology for pennies on the dollar and a new lease on life as a self funded, independent, bootstrapped business. Free’d from the cap table and expectations for an exit from anxious VCs, they were able to focus on a small niche of their market, become indispensable to their customers and grow at a rate that made sense for them, not for their backers.
They chose to run the business this way for over 10yrs, eventually selling to Reuters in 2011 for a rumored price tag in the low nine figures.
The current trickle of startup failure headlines will build to a flood over the coming months as founders run out of options and investors tap out and move on. Some will find soft landings at other startups where their technologies and customers will be sidelined and the businesses they’d hoped to build scrapped or simply shelved for another day.
As this unfolds I can’t help but wonder how many Serengetis are being thrown into the trash pile of failed experiments as too minimal or not viable enough to generate a VCs sized return? How many, under different terms and out from under the pressure to build a billion dollar monopoly could thrive on their own terms?
I wonder if most founders even know that’s an option?
If they didn’t before they do now.
Personally, I hope we see more of these types of bold moves from founders and fewer acquihires, where no one really wins.
If someone had a different approach to partnering with founders or generating returns, this might be a really interesting area for investments to explore…
