When Startups Don’t Raise

A mark of a growing company is a need to raise fresh funds to help finance expansion. Even when they’re making money, companies that have raised in the past tend to do so again to take advantage of higher valuations. By the same token, companies that haven’t raised money in a couple of years could be in trouble.

To get a sense of some companies that may be on the edge, The Information and CrunchBase examined startup data from the past two years to find early-stage companies that haven’t raised a round in two years or more.

CrunchBase identified more than 500 companies but most of those had raised very small amounts of money initially. When the list is narrowed to only those that raised at least $5 million at series A or $15 million at series B, 62 startups were on the list, plotted on the accompanying chart. Only U.S.-based tech companies are on the list. Bio-tech firms are excluded.

Among the companies on the list are Clinkle, a payments firm, e-commerce firm Lolly Wolly Doodle, and Leap Motion, a motion controller company. Roll over or tap each dot in the above chart for the name of each company.

Here’s one way to think about the chart: The data points toward the lower left-hand corner represent the startups that have raised the least amount of money, the longest ago. These startups could be in danger of simply running out of cash. Another way: The startups higher up the vertical axis have raised the most cash, and therefore have the highest expectations in terms of returns.

These companies aren’t necessarily in trouble, of course. Quick success could generate enough revenue that a startup doesn’t need to raise further capital. But typically a startup burns cash for a long while, which means it has to raise money, either privately or in an IPO. 

As we’ve written, companies in certain sectors have an easier time going from seed funding to series A funding. We also wrote about the value of capital and the tech bubble in this article. 

Companies could be out of the fundraising market because they’re shifting into a different, more profitable business. Take Bitcasa, which raised money in 2013 aiming to sell cloud storage to consumers in competition with Google and others. That proved a tough slog.

Bitcasa's Transition

So when flash storage firm SanDisk called to ask about using its underlying technology, Bitcasa was interested. It struck a deal with SanDisk this fall to provide the cloud storage for a hybrid USB drive. Slowly but surely, Bitcasa has become a business-to-business company that also works with Tata Communications and Hutchison Telecom.

Fortunately for Bitcasa, it was able to survive on revenues from its consumer products as it changed its approach. Bitcasa CEO Brian Taptich says it was tough to have to rethink the company’s future.

“It’s existentially difficult to be out in the marketplace and voluntarily say, we’re going to pull back from the marketplace because we don’t think we have this right,” Mr. Taptich said in an interview. “To be back out there now is a huge sense of relief.”

Expect to see a lot more stories like Bitcasa’s in the next few months.