Everpix and the Supposedly "Series A Crunch"

Written on 2014-08-21

Everpix was a photo-storing and syncing app that had to be shut down after the company ran out of money in November of 2013. Startups fail all the time, but Everpix's story is unique because it chose to share the details of its journey (here and here) from its launch in 2011 until its demise two years later—giving startup communities around the world a chance to take away valuable lessons and insights. Here are the key details of Everpix's story:

Raising money was easy in the beginning.

Everpix had no problem raising $2.4 million in seed funding, which is a very large amount for an early stage company with no substantial traction. In comparison, Instagram and Snapchat—both successful startups from a similar space—only raised about $500,000 when they were at the same stage.

The team was more worried about product than growth.

Startup blogger Chris Yeh wrote an interesting piece stating that Everpix's fate was sealed by the fact that the team would not test features that could potentially increase growth for fear of changing the product or the user experience.

This preference for product over growth (rather than trying to balance both sides of the business) was clear in the original Everpix presentation deck, which highlights a product roadmap in one of the slides but doesn't include any growth strategies or projections for business milestones.

Management tried to throw money at its problems.

The fact that Everpix raised a “fat” seed round probably pushed the team to grow expenses at a rate that was not healthy for an early stage company still in the discovery phase. It spent $565,000 on consulting and legal fees alone, which is a number that represents a full seed round for many companies. In addition, consulting and legal services usually don’t create much value when you are still a small company.

Famous, game-changing pivots, like those performed by Instagram and Pinterest, happened with no extra funding. Instead, they originated from insights provided by the companies' founders.

In the end, Everpix wrongly blamed “the series A” crunch for its demise.

In Everpix's final investor report, the company's CEO said:

We have what appears to be a successful product / company from the outside, but we just can’t raise money and therefore have to […] fold the company.

Basically, the Everpix team felt that the problem was the investors, not the company itself. The team wanted $5 million to help it reach one million users (link). However, it's no secret that fundraising works in the exact opposite way: investors want you to reach one million users before they make a series A investment in you.

Since Everpix had spent more than $2 million in seed money but had only attracted 50,000 users, it’s really nos surprise that the investors’checks stopped rolling in.

Conclusion

I believe that Everpix's ability to raise a "fat" seed round with relative ease lulled the company's founders into believing that fundraising would always be easy. But in the end, of course, this proved not to be the case.

Had Everpix approached its cost structure more conservatively, perhaps it would have had the flexibility to pivot or the ability to wait for an inflection point in its user-base growth before making a final decision. Building a startup is always a game of playing against the odds, and the better you prepare for worst-case scenarios, the better your chances of success when the unexpected does occur.

A closing thought: The Everpix product has been discontinued, but I have the utmost respect for what the company accomplished during its journey—and there's no doubt that many people loved using the product that the team created. I hope that this experience has given everyone involved with Everpix a wealth of knowledge to take to their next startup, and I wish them all the very best of luck.