I am not here to pile on the Amp'd Mobile situation, but I find it is always important to learn as much as you can from your mistakes and from other people's mistakes. Rafat Ali has a great interview with Peter Adderton, the former CEO of Amp'd Mobile. Here are a couple of interesting points that Peter says helped to ultimately bring the company down:
-- You don’t raise $400 million in 18 months by spending time inside the office. Trying to ambiguously raise that amount of money, while at the same time trying to create something new and different was a challenge that caught up with us in time.
-- On the financing, we were learning as we went along. With the amount of cash that we required, it probably made more sense to go with one or two big pockets than a lot of smaller pockets.
-- The biggest struggle I had [with the board] was agreement on where the company should go. We had way too many board members and then we had observers at top, and the any partner could dial in, to a point where it became very difficult for the management to manage.
Rather than dive into some of the operational or economic lessons like how a company that raises $400mm can't get to profitability, I thought I would focus more on the financing side that Peter discussed with Rafat. In short, some of the lessons learned from Peter include having too many investors and too many board members. One VC once told me that having a great board did not guarantee success but having a bad board can almost certainly guarantee failure. Speaking from personal experience, it is pretty easy to see how differences in strategic direction and plans combined with egos can get in the way of real productivity. The more people you add to the mix and the more complicated and time consuming it can get. In fact, I remember spending at least 3/4 of my time on one of the weak boards dealing with bickering between other board members instead of spending my time helping management and focusing on the important issues. The CEO also had to spend just as much time massaging egos and different incentives to keep driving the company forward. At times, It was close to impossible for the board to come to agreement on a budget, hiring plans, and strategy and ultimately the company missed many opportunities. I can only imagine what Amp'd board meetings were like when you mix in a number of VCs, hedge funds, and strategics, all of whom invested in different rounds at different prices and with different preferences. So one of the lessons to be learned is to choose your partners wisely and less is more. Rather than try to spread out ownership of your business with lots of investors so one or two don't have too much control, you are better off looking for a couple of investment partners who share the same vision of the business and who you believe will act rational through both good and bad times. This is where references can help tremendously.
One other point, every second you spend fundraising is another second you are not running your business. Companies have to be well prepared and go through a number of meetings to raise $5mm let alone $400mm in 18 months. It is not hard to see how the CEO and management can get distracted and not spend enough time on operational issues when they are constantly raising capital. And of course, the more money you raise, the bigger the exit you need to get investors their 8-10x. I am not saying this happened in the Amp'd situation, but when capital is abundant and the pressure to create significant returns exist, it can force companies to try to get big fast and try to spend their way to success instead of finding the right mix of organic and inorganic growth. That is why I have always loved capital efficient business models.