Taking venture capital is often the simplest path to shipping a product or service. It’s almost a given for startups; but recent news surrounding Jawbone’s downturn shows that it can be treacherous territory.
A Reuters report says Jawbone’s cause of death was “overfunding.” The wearables company was taking venture capital at a regular clip, all in an effort to stay relevant. At one point, rumors pointed to CEO Hosain Rahman leveraging the vast datasets that Jawbone had gathered about users as value for investors. But in trying to use Jawbone’s data as a reason to invest, Rahman lost sight of his company’s focus on the users themselves.
Rahman has a plan, though: Jawbone’s devices have reportedly given the company enough data and expertise to start making medical-grade equipment and decisions for its users. Perhaps not ironically or coincidentally, Jawbone’s demise has spawned “Jawbone Health Hub,” which The Information says “will make health-related hardware and software services.” It’s been a very expensive road to reach this point.
Research firm CB Insights suggests that Jawbone is the second-largest venture-backed failure ever. Despite nearly one billion dollars in funding, and a valuation of $3.2 billion, Jawbone fell on its face when confronted by rival Fitbit – and later, Apple Watch. There’s an argument to be made that the company was exposed as too pedestrian once it had competition. People familiar with the goings-on say Jawbone was a low-hanging acquisition target, but took far too much funding to remain financially attractive to bidders.
We also have to wonder who else may be in similar stead with regard to VC money. Uber is still private, and takes healthy amounts of venture funding. Given recent issues with the ride-sharing company – as well as its stratospheric valuation – an acquisition seems impossible at this juncture. Similarly, Lyft is an unlikely acquisition target due to its size, scale, and existing partnerships with Chinese ride-share services.
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And who may be next on the executioner’s list? Faraday Future, which builds electric vehicles, appears DOA, though it’s not clear if it was privately funded or took venture capital. Other services such as Spotify and Dropbox are rumored to be going public, but they’re also in highly disrupt-able industries. Snapchat has routinely underperformed in the stock market after having most of its features pinched by Facebook’s Instagram.
The eagerness to scale and grow, especially early on, cost Jawbone long-term success. It also priced them out of an acquisition, which most see as a success in itself. As a spinoff, we don’t know how Jawbone Health Hub will do, but most venture capitalists will likely discount its leadership’s decision-making. Sometimes it’s better to turn down the money, even when venture firms are tossing millions of dollars at you.