It is always difficult when a startup darling fails. The press cuttings which previously praised the company for innovation and rule-breaking using venture capital are equally prominent criticising naïve management and spiralling costs. Such is the case with much-feted community invention company Quirky, which filed for Chapter 11 last week.
The business had been backed by General Electric (GE) and Norwest Venture Partners, which manages venture investments for Wells Fargo, as well as top tier venture firms including Andreessen Horowitz and Kleiner Perkins Caufield & Byers.
GE had invested $30m in the company as part of its $79m series D, and the company was closely involved in a commercial partnership. The Wall Street Journal found the business was the biggest one to file for bankruptcy since 2013, with Quirky having raised around $170m.
GE said in a statement of the Chapter 11 filing: “The partnership with Quirky helped GE push boundaries to bring new consumer products to market faster and accelerated our connected platform in lighting, so we are disappointed that the company has filed for bankruptcy.”
It added: “Connectivity is an important part of GE’s strategy, and we will be introducing more connected products this fall that are consistent with our commitment to expand connected products on multiple platforms. Experimentation is central to GE’s DNA and we are continually seeking new ways to innovate for a rapidly changing world.”
This is the kind of publicity which corporates investing in startups need to be able to withstand, as it is a hit and miss business. This is sometimes easier said than done in the corporate environment – you can easily imagine what some in a corporation would think of a company called Quirky even before its collapse. The historically problematic reputation of corporate venturing is in large part due to the unwillingness of many corporations to weather such difficult moments.
How GE responds to this high profile setback, as one of the most prominent corporate venturing investors, will be one to watch.
Quirky’s founder Ben Kaufman had already conceded the company was running out of cash in July, so its likely the company’s fate has already been discussed within GE. At present GE are still in the top ten of investors (see below table from our forthcoming data product GCV Analytics) we have tracked this year, so it looks like their portfolio approach is holding firm.
If so, given there are more than 100 unicorns or private companies valued at more than $1bn, Quirky is an early one of many expected failures of startup darlings. It would be a great thing if many corporates doing venturing are truly in it for the long haul, but we will only know this when the big mistakes are past. Counter-intuitively, if it continues to stay the course, GE’s reaction to this failure may be the making of it in corporate venturing, and could make it an example for others to follow.
