No Market for Failed Startup Products

Over the past couple months I’ve talked with several entrepreneurs that decided to shut down their startup. As part of closing the business, each one wanted to find an acquirer for their product. When asked for advice, I always said to just close up shop as there’s no market for failed startup products. Of course, in an effort to show good faith in trying to return capital to their investors, each one sought out acquirers, and each one failed to find a home.

Here are a few reasons why there’s no market for failed startup products:

  • Most startup technology, with little-to-no customers, isn’t worth anything as a potential acquirer can build the same technology in-house (since it’s easier to build technology in general, technology alone isn’t valuable to an acquirer)
  • Reaching out to competitors, or adjacent startups, and saying the product is for sale, results in financial offers of next-to-nothing, if at all, because it’s clear the business is going to shut down (the BATNA – best alternative to negotiated agreement – is $0)
  • Acquisition costs from lawyers, accountants, etc. combined with leaving the liabilities with the seller (e.g. an asset acquisition might buy the product’s IP but not any liabilities) often results in a financial arrangement that’s not any better than shutting the business down

Sometimes it is worth finding an acquirer for a failed startup product, even though it doesn’t make sense financially, as there’s a desire to keep the product going for existing customers for a period of time longer than could be made available otherwise. Regardless, there’s almost no market for failed startup products and entrepreneurs are better off shutting the startup down and returning any existing capital back to investors instead of spending more money keeping the lights on in an effort to find an acquirer.

What else? What are some more thoughts on the idea that there’s no market for failed startup products?

2 thoughts on “No Market for Failed Startup Products

  1. If the technology is sound, I think there is a market – especially in the Silicon Valley for late stage startup companies. Late stage startup companies are looking to tackle new or adjacent markets to show momentum prior to their IPO. However, these company’s existing engineering team is way too prioritized to keep the lights on for their existing product than innovating new products. Even if they do innovate a new product, it is unlikely to have the rigor and market validation that a startup will go through. Lots of startups are “good features”, but not necessarily a business on its own – so being acquired by a company that has a decent sales channel (especially enterprise sales) it enough to make it worth while to be acquired.

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