Why did Secret shutdown and not pivot?

Rachel Zheng Business Development Manager at Honyee Media

April 30th, 2015

I'm sure everyone knows that Secret (the anonymous chat app that raised at $100M valuation not that long ago) is shutting down. The founder said "Secret still has significant invested capital, but our investors funded the team and the product." My first thought is why didn't they pivot? They have a on of cash and runway and clearly get something about mobile. There is room - even with a reduced team - to take some time and launch something new. If they had been at it for years and were tired I'd somewhat get not doing that. But they probably have several million left. Curious to hear thoughts from people - not in a gossipy way, but in an explanatory insightful way.

Benjamin Olding Former Co-founder, Board Member at Jana

April 30th, 2015

"Pivot" is a popular word, but it's typically used to describe the radical changes a pre-Series A company makes as it explores a series of potential ideas.

At the point you are valued at $100M, "pivot" is not a realistic option: you either grow or die. You can call this "lack of motivation" if you want, but I think that's a bit naïve: you blow up the cap table big time when you decide to take a $100M company & reduce its value to cash and team in search of a new opportunity. That's not a pivot; that's a full crash & you're not raising more money unless everyone agrees to basically start over. Pre-series A, the company value *is* cash and team (mostly team), so the whole point is to rapidly explore new ideas. Don't leave things on life support if you've truly lost faith in the premise.

Why the company lost faith in the premise is a real question... and maybe there was simply lack of motivation to keep trying, though I hope that's not true: that would be kind of sad.

Anonymous

April 30th, 2015

I know this is going to be an unpopular opinion, but my response to this is simple: lack of a personal incentive to continue taking risks necessary to turn the venture around (if possible). Each founder was able to cash out $3M in < a year for an app with no revenue (or visible revenue model). They hit some bumps and realized they don't really have to continue the battle.

Now, obviously, things are always more complicated than they seem at the surface, but that's my theory.

Brogan Keane CEO & Founder at FlareWorks, Inc.

April 30th, 2015

In 9 out of 10 cases like this, the founders do propose ongoing pivot options to their Board/investors who likely came to the collective conclusion that they would rather get their remaining capital returned then bet on another pivot, in a brtutal consumer mobile field, with co-founders and key employees bailing at ever-increasing rates (demonstrating that the internal rate of sponsorship was rapidly declining).

Secret demonstrates the investment communities obsession with viral metrics over long-term, sustainable value. It's unclear to me the monetization value of anonymous content networks. Authorship is central to the concept of quality in content and lacking it only creates rapidly diminishing perceived value.

At some point, I felt like most of the secrets I was reading were made up by people trying to generate as many social "likes" as possible. It was novel, for some fun, but never sustainable when one eventually has to cram for finals, care for an ailing sick one or, otherwise, perform at their job so they can make rent the following month.

Jay Kirsch Experienced Digital Media Executive & Entrepreneur

April 30th, 2015

Simply, its the ethical thing to do. Investors placed their capital into a venture with a specific plan and a management team. If the team did not have a compelling plan to move the business forward and create value you are spending someone else's money. The CEO is to be commended. The next time he comes to the table and says he does have a plan, he will be taken more seriously than had he burned through all the cash.

Stephen Huson Leader in Internet lead generation, SEM / PPC / SEO and analytics

April 30th, 2015

I think Richard's point is right on. They were not increasing traction, key people had left, and only one of two founders remained. Given that the founders had sold some equity in an early round and only one ot them remained, it is unlikely that the founder has control. The investors have control, don't like where things are headed, and would rather liquidate, taking the remaining cash rather than spending it on this venture or the remaining team.

Edward Robertshaw Started TinyCall

April 30th, 2015

I've seen a lot of start up friends waste years from a their lives chase pivot or perceiver. I think this was likely a good move for all involved, to cut the losses.

If you raise money on idea X and learn that idea X is flawed then stop and give the money you have left back is an option. Work on something you care about, like you did when you started the company, don't chase a problem, solve a problem.

Only pivot as a course correction on the vision, if your vision is found wrong its game over.

Michael Brill Technology startup exec focused on AI-driven products

April 30th, 2015

@Richard: What investors hear:

blah, blah, blah, blah, blah, 10 million users in 6 months, blah, blah, blah, blah, blah

John Maloney Internet of Things Executive Consultant, IoT Engineer

May 1st, 2015

"Wouldn't it be nice to put in six months of work and make $6 million? That just happened for the founders of Secret, a six-month-old anonymous social networking app that raised $25 million at an eye-popping $100 million valuation earlier this month. During the round of financing, investors let founders David Byttow and Chrys Bader-Wechseler sell restricted stock in exchange for $6 million in cash, which sources say they split."

Heather Wilde

April 30th, 2015

There are a few things at work here:

One of the founders already left the company in January.

They already had one unsuccessful pivot.

You don't have to "go down with the ship."

The remaining founder likely looked at the value proposition of the company, decided that there was nothing that they could change the platform to that would be true to their original goal. If they changed it much more it would no longer be "Secret".

Quite simply, they were creating a product that people did not want or need, and it is commendable that they shut it down before wasting all the investor money.

Michael Brill Technology startup exec focused on AI-driven products

April 30th, 2015

@Richard, I think they raised $35m... minus $6m for founders minus, say, another, say, $9m(?) for operating costs still leaves $20m. That's a lot of money to fritter away when when you've lost momentum and passion and key people and ideas. The founders don't have a financial need to make it successful, so why not take a step back and then go work on something they have a true passion for. They can afford to do that and it's probably the right thing to do.

This is what 'fail fast' looks like.

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