PURCHASING A DISTRESSED STARTUP
Big preface here: I know this is the antithesis of the search fund model; buying stable cash-flowing businesses, but has anyone ever looked into acquiring a struggling or failed startup? The nature of the venture model leads to extreme outcomes, big wins, or big losses. A startup with a good product could inadvertently capsize their businesses by trying to grow too quickly. If their topline growth slows, they cant raise another round and its game over. In simpler terms; some of these businesses could be great 50-100MM a year rev companies but fail while trying to scale to 1B+ to satisfy the massive growth requirement forced by VCs.
Here is a case study I thought of: Brandless, the company raised $240MM from Softbank and abruptly shuttered this year. I remember reading a lot of customers were very disappointed to see them go. Hypothetically one could acquire their IP, manufacturing contacts, remaining inventory, and customer list and run it as an Amazon FBA business. At least some of their products have to be winners and you could double down on those. Might not ever be the multi-billion-dollar company the VC envisioned but you could be left with solid FBA business without having to spend the time and investment required to develop a catalog of unique products.
Im sure there are plenty of other examples in DTC and Saas business models although some of the more ambitious plays like robotics, AI, blockchain, biotech, etc. could be total losses.