

Ecomom is liquidating and shutting down - Dramatize
http://pandodaily.com/2013/02/14/ecomom-is-liquidating-and-shutting-down-investors-are-stunned/

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bitcartel
We know students are taking their own lives because of the debt they think
they can never pay back[1]. Start-up founders are in a similar position,
indebted to their investors[2] and under pressure to deliver a return. Do
start-up incubators like YCombinator and 500 Startups provide advice and
counselling to founders, especially younger entrepreneurs just out of college?

[1] [http://www.huffingtonpost.com/c-cryn-johannsen/student-
loan-...](http://www.huffingtonpost.com/c-cryn-johannsen/student-loan-debt-
suicides_b_1638972.html)

EDIT: Added to clarify

[2] A debt of gratitude, where there is a moral obligation to repay investors
for their help and funds.

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tptacek
Startup funding is structured as equity, not loans. The situations are not at
all comparable. You can virtually always walk away from a failed startup.

~~~
BjoernKW
This might be true for Silicon Valley but for most startups elsewhere this
certainly isn't the case. In most places equity simply isn't as readily
available so you basically have no choice but to take out a loan if you want
to found a company that isn't cash flow positive from day one.

Besides, founders - at least where I live - are required to act as guarantors
for such loans. So, no in most places you can't just walk away from a failed
startup.

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tptacek
If by "startup" we mean "technology company" I feel comfortable arguing that
if "most" companies aren't in Silicon Valley (in fact they probably are), they
are at least mostly in the US, where equity financing for startups is the
rule, not the exception.

In the US, it is very difficult to get bank debt financing for startups, for
the same reason that service providers price your imminent demise into their
contracts.

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BjoernKW
'Startup' doesn't necessarily imply 'technology company'. For example, some
run-of-the-mill restaurant certainly isn't a startup in my opinion but a brick
and mortar store offering a unique product or concept could very well be
considered a startup.

One could in fact argue that the most influential tech companies are located
in Silicon Valley. However, in terms of sheer numbers I daresay most startups
are actually founded outside the US. Just consider the huge amount of medium-
sized enterprise IT companies that offer some essential service or product
that no one probably has ever heard of. I'd certainly consider those to be
startups (when they were founded, that is), not of the sexiest variety, but
startups nonetheless.

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tptacek
Sure. We can just stipulate though that by "startup" I mean "US technology
company".

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leoedin
The article doesn't say what the 28 people on staff did. Even if the cost-per-
employee was only $50k/year, that would be an annual bill of $1.5m. A staff of
programmers would cost more than 3 times that.

It doesn't really explain away a recent $5m funding round, but there doesn't
have to be much of a drop in revenues for monthly payments to 28 staff to
start eating away at your bank account very quickly.

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HarryHirsch
It's an online retail company - what do you need 28 people on the staff for?
Hosting and administration is outsourced, as is warehousing - that leaves a
front office guy, a back office guy, a finance guy, a web guy and someone who
writes the truly awful copy that you get to read on Ecomom.

~~~
filmgirlcw
And a buyer, and a customer service person, and accounts receivable, plus ad
ops -- not to mention sales and biz dev folks.

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uptown
I have no idea where they spent their money - from the article it sounds like
some of it may have gone towards misguided inventory purchases, but why would
a company like this need its own technology infrastructure? It seems very
well-suited for operating on someone else's sales platform (Shopify, or
something similar). Let the third-party focus on uptime and scaling while you
worry about marketing, promotion, and order-fulfillment of your site and its
products.

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michaelt

      from the article it sounds like some of it may have gone 
      towards misguided inventory purchases, but why would a 
      company like this need its own technology infrastructure?
    

They're a retail company; by inventory, perhaps it means they spent all their
cash on a big shipment of diapers and sippy cups.

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drpgq
At the date of his death, I was wondering what the financial status of his
company was. Now we know, unfortunately.

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pclark
You'd burn through $5M scarily fast with a staff of 28.

~~~
lisper
They raised $4.7M last August:

[http://pandodaily.com/2012/08/14/a-4-7-million-injection-
in-...](http://pandodaily.com/2012/08/14/a-4-7-million-injection-in-green-in-
las-vegas/)

They would have had to pay their 28 employees an average of about $300k a year
to burn through all that by now.

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gojomo
But they're reported to have ~$1 million in debt right now (plus perhaps that
much or more cash still in the bank). And it's possible they had another $1
million or more in debt around the time of the financing, in vendor AP or
bridge loans, which the financing paid-down. And there are other expenses
beyond employee overhead in growing an ecommerce brand.

They were apparently burning cash too fast but a simple ($4.7M / 28 people /
0.5 year) isn't going to give a fair estimate ("paying $300K/year") of what
they were burning it on.

~~~
lisper
Sure. My point was just that the head count alone probably can't account for
the apparent burn rate. There must have been something else going on.

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athst
Something seems off about this. I think we need to learn more details about
what happened at the company rather than just accept some vague idea that
there was a bad purchasing decision. Should a bad purchase really be able to
sink a company? At an e-commerce company, shouldn't there be systems in place
to make sure that this doesn't happen? I hope a another journalist digs into
this.

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justin_vanw
Is everything on ecomom marked down to liquidate it? Because it looks like
they are _heavily_ subsidizing the prices on this stuff.

I see prices that are half or 2/3rds what amazon charges for the same thing.
Plus they give free shipping as well for not-that-large orders.

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trotsky
I don't believe anything is priced down due to this news. If I'm not mistaken
the free shipping threshold was actually raised to $100 in the last week or
two.

I think that inventory liquidation is typically done by a 3rd party in
situations like this.

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zulfazli
Fraud by employee(s)? Never heard of startups going down on this reason before
though...

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adrianscott
and PandoDaily turned off comments and hid the existing comments...
interesting, pandodaily...

