dangletech

If you read TechCrunch with some regularity then you’ve probably come across the deadpool at some point. The deadpool is the tag TechCrunch gives companies when they have either closed up shop or if TechCrunch decides the future direction of the company can only lead to utter failure. Once in a while I peruse the deadpool to examine its inhabitants. I do this because just as it is important to understand why companies succeed it is also helpful to understand why companies fail. With that in mind I decided to compile the list of companies that entered the deadpool in 2007 and 2008 and perform a quick analysis (nothing scientific) in order to see what kind information could be gleaned. At a high level I figured I could at least determine the types of companies in the deadpool and, if lucky, maybe pull out some of the most common reasons for failure.

The Process: I first identified each TechCrunch deadpool member from 2007 to the present and collected info on:
    The type of Service/Product
    The launch/founded date
    The reason for failure (if available)

I didn’t include certain companies depending on criteria such as acquisitions (Yahoo for example) unless there was a major failure, or companies that had been entered into the deadpool but were revived at a later date. The end result was a list of 43 deadpool companies. (Obviously more than 43 companies failed during this period but remember I’m just looking at the deadpool with a filter).

The second step was to categorize the companies so that I could come up with the following breakdown of the deadpool for the last 21 months or so.

**********picture**************

All categories are 2% of total unless otherwise labeled.

There are a numerous ways to interpret this chart. A few examples are:
1.  Failures: The chart shows that certain areas such as Social Networks, MVNOs (Mobile Virtual Network Operators), Media Streaming, etc. tend to have higher failure rates than others. In other words, one might think that these are all bad bets and you should stay away.
2.  Variety: The chart more or less confirms that nobody is immune from failure. There is an assortment of companies from very different areas that make it into the deadpool.
3.  Hot Areas: At a basic level, the chart helps to identify areas that had a high level of startup activity preceding this period. If you reason that the number of failed companies is proportionate to the number of new entrants then the chart shows that a few years ago Social Networks, MVNOs and Media Streaming were hot areas (and may continue to be today).

Unfortunately, the conclusions aren’t that black and white. #1 has some truth to it but not in each case, #2 is pretty obvious, and #3 is probably close to the truth. I think all three of these points are valid on some level but the issue is, without proper context, it is difficult to say with confidence if any of these categories are particularity worse than the other. The MVNO market has certainly been very risky and has seen its fair share of failures with obscene amounts of Venture Capital money being spent but how does that compare to Social Networks or Group SMS? To provide the proper context I would need to take a single category from the pie and then perform a similar analysis on that single category to understand what percentage of companies in that that specific category fail (for example Social Networks), repeat that for each category, and then compare and combine with anecdotal evidence. That is a lot of work, and maybe I’ll get to it some day but for now I’ll skip that and move onto the data I actually have.

Once I had the data collected it was easy to come up with the following:

Average number of months from launch to deadpool: 21 months
Standard Deviation: 15 months
Longest ‘alive’ period: 76 months (6.3 years)
Shortest ‘alive’ period: 2 months

So it looks like if you’re past the 3 year mark the odds of hitting the deadpool drop off dramatically. Nothing surprising here except for the quick 2 month member.

I will continue the analysis and see if commonalities can be found between these companies that may shine some light into what precipitated the journey to the deadpool. I’ll save that for the next post.

I’ve made the list of the 43 companies available for download if you want to check it out. It is in Excel format: Deadpool member (xls)
In the meantime I’d like to hear your thoughts on what the chart means to you and any related stories you may have…
About the Author
Peter Frisella is an Associate at Tech Capital Partners where he evaluates investment opportunities, performs market research, and provides strategic and tactical guidance to Tech Capital portfolio companies. His ability to highlight an organization’s strengths, while effectively targeting areas that require improvement, is an invaluable asset.

~ Reprinted with permission from Tech Capital Partners ( http://www.techcapital.com) ~