"Graceful Way Out": Investors Propose Struggling Founders Close Shop and Return What's Left of Funding

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A growing number of investors have begun suggesting that certain venture-backed startups that have yet to find so-called product-market fit throw in the towel. Their argument is that some startups simply raised too much, at valuations into which they will never grow, and that clean, well-planned exits are better for everyone than messy ones. After all, the money could be invested in something more impactful. Importantly, the founders' time could also be focused on more productive endeavors, greatly improving their mental and emotional well-being.

It's a reasonable proposal. Working on something that isn't working can be soul crushing. Still, we're not sure many founders would give up on their companies right now for a long list of reasons. Among them: Fundraising is tight, so raising money for another startup is not a no-brainer. It's a lousy job market, and most founders feel an obligation to take care of their employees. Some very strong companies have been born of pivots, including, famously Slack, whose team initially sought to make a game called "Tiny Speck." Not last, if investors gave founders too much money in recent years -- and more than $10 million for a company without product-market fit sounds like too much money -- that's really their own fault.

Wanting to explore the issue further, we reached out today to renowned operator and investor Gokul Rajaram, who last night observed in a tweet that "[m]any founders who raised large amounts of money ($10m+) in 2020-21 but subsequently realized they don’t have [product-market fit], are going through an excruciating psychological journey right now."

Rajaram -- who sits on the boards of Pinterest and Coinbase -- had added on Twitter that an early shut-down can be a "graceful way out" for stressed-out founders, so we asked him whether it's also practical, considering the current market. He made the case for why it is in an email conversation, edited lightly here for length:

VCs aren't letting their own investors off the hook by shrinking the amount they have raised, yet they want founders to give back some of their funding. Do you see a connection?

That’s a great question. I don't think the two behaviors are connected, at least not yet.

More here.

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Illumix, a six-year-old startup based in Redwood City, Ca., that uses AR to let customers try on merchandise such as jewelry, raised an $18 million Series A round. Investors included LightShed Ventures, Henry Kravis, Mark Cuban, Sony Innovation Fund, RW3 Ventures, OV, and Visible Ventures as well as previous investors Maveron and Lightspeed. The company has raised a total of $26.6 million. Forbes has more here.

Luma AI, a startup based in Sunnyvale, Ca., whose app enables users to capture objects in 3D, raised a $20 million Series A round led by Amplify Partners, with NVIDIA, General Catalyst, and previous investors Matrix Partners and South Park Commons also contributing. The company has raised a total of $28.1 million. More here.

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Two, a three-year-old Oslo startup that provides buy-now-pay-later invoice financing for SMBs, raised a $19.3 million Series A round co-led by Shine Capital and Antler, with Sequoia Capital, Day One Ventures, Alumni Ventures, LocalGlobe, The Visionaries Club, and Alliance VC also piling on. The company has raised a total of $22.3 million. Sifted has more here.

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Wingtra, a nine-year-old Zurich startup whose drones are used to perform surveying missions by organizations such as NASA and the Army Corps of Engineers, raised a $22 million Series B round. Investors included DiamondStream Partners, EquityPitcher Ventures, Verve Ventures, the European Innovation Council Fund, and Ace & Company. The company has raised a total of $41 million. TechCrunch has more here.

XXII, a Paris-based AI-powered computer vision SaaS provider for the deployment and configuration of video stream analysis algorithms, raised a €22 million Series A round. Fonds Innovation Défense (Defence Innovation Fund) managed by Bpifrance, led the round; it was joined by 574 Invest, CIB Développement, Techmind, Kima Ventures, business angels, and the Duval Group. Silicon Canals has more here.

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Monite, a three-year-old Berlin startup whose API allows invoicing and supplier management to be embedded into existing payments interfaces, raised a $5 million seed round led by Third Prime, with S16, Audeo Ventures, and Long Run Capital also joining in. The company has raised a total of $10 million. TechCrunch has more here.

StructShare, a two-year-old New York startup that enables trade contractors to automate procurement processes in the field, office, and warehouse, raised an $8 million round led by KOMPAS, with SeedIL and CEMEX Ventures also pitching in. The company has raised a total of $10 million. More here.

SupplyCaddy, a three-year-old Miami startup that manufactures and distributes packaging and disposables for restaurants, chains, and foodservice brands, raised a $3.2 million seed round. CEAS Investments was the deal lead. More here.

Tavus, a three-year-old San Francisco startup that says its tech will give companies the ability to create unique videos tailored to a specific individual based entirely on a single initial recording, raised a $6.1 million seed round led by Sequoia Capital, with additional funds provided by Accel Partners, Index Ventures, Lightspeed Ventures, and YC Continuity. TechCrunch has more here.

Togal.AI, a Miami startup that says it uses AI to help humans more effectively determine the cost of various elements of the construction process and manage bids with subcontractors, raised a $5 million pre-Series A SAFE. Investors included Florida Funders and Coastal Construction. Refresh Miami has more here.

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