
Everpix VC Feedback - jhull
https://github.com/everpix/Everpix-Intelligence/blob/master/Anonymized%20VC%20Feedback.md
======
ivanplenty
This morning I did a public write-up of the Everpix business model to see why
it failed:

[http://research.ivanplenty.com/2014-economics-everpix-
shutdo...](http://research.ivanplenty.com/2014-economics-everpix-shutdown-
decision)

(Submitted to HN a few hours ago as
[https://news.ycombinator.com/item?id=7052593](https://news.ycombinator.com/item?id=7052593))

tl;dr Everpix sold its product at a _marginal_ loss and closed its doors after
the financing ran out. Since the marginal costs always exceeded the marginal
revenue we now know that Everpix should have shut its doors immediately as it
never could be a viable business in either the short or long runs. There
doesn't appear to be a what-if cost structure change that it could have made
realistically to stay in business. Shutting down was the right decision for
the business, and this evidence suggests it should have shut down a long time
ago.

~~~
barrkel
_a business should supply a product if the marginal revenue is greater than
the marginal cost_

This isn't right. The return on capital must exceed the cost of capital, at
the very least the market rate of interest. Otherwise you're not taking into
account opportunity cost.

I have another issue with your analysis. It's quite blinkered, focused on
immediate profits with the zeal of an accountant. Solutions to the photo
problem have potential for being strategic, and I don't think it's been
figured out yet.

A better focus on cost structure could have extended the lifetime of the
company, but it likely would have grown too slowly for "$B". I think the
founders tried hard to generate growth metrics, betting that the growth would
convince investors they could hockey-stick. But they didn't get quite enough
growth, and their burn rate was too high to put on the brakes[1] - and likely
they weren't interested in putting on the brakes. So I don't think your
analysis is particularly relevant in the end. It deals mostly with cash-flow
level tactics, whereas this was a strategic play.

Don't get me wrong, I think you're a decent analyst. But I expect people use
you for your specific focus, not for the big picture. I think you would have
predicted YouTube to be a failure, for example.

[1] I'm relying on the burn rate being in a vehicle of some sort for this not
to be a mixed metaphor...

~~~
Pxtl
I think you're missing his point. He's focusing purely on the cost that
increment per-user - that is, the costs that are _directly_ associated with
each user.

The fixed costs are allowed to be obscenely high. Growth will overcome that.
If you build an obscenely expensive server farm and spend $Xmillion developing
software, you can get that back if you get X paying customers _eventually_.

However, if each user you get means you have to fork over another $12/mo to
Amazon when the user only is paying you $10? There's no way to make that work.
More users would actually cost you more.

Maybe there's way they could've torn out their infrastructure and rebuilt it
as self-hosted. Maybe there were some optimizations they were missing that
could've cut those cloud-based costs.

But on the surface? Every dollar the user handed them got handed right off to
Amazon, and Amazon's prices go up as you get more users.

~~~
barrkel
Amazon is a way of bootstrapping quickly. You pay a premium for not managing
the physical assets yourself. But I'm not saying anything you or I don't
already know.

Of course they could have stayed in the black by growing more slowly and
managing costs better. I think that's obvious, and _uninteresting_. It seems
clear to me that the guys at Everpix were making a somewhat desperate effort
to get VC traction. IMO that's what led to their increased burn rate.

I don't think they didn't know they were burning their reserves, that their
cost structure was unsustainable.

I feel we may be talking past one another.

~~~
ivanplenty
I really appreciate yours and the GP's comments because both describe
different parts of the Everpix puzzle.

You're right that capital should seek the highest returns, but one way to
measure the likelihood of getting that return is by evaluating the marginal
costs and revenues of a product. When a company sells each product for a loss,
it is impossible for the company to provide a positive return on the capital.
In those cases, like with Everpix, it becomes a question of "when" and not
"if" the business will fail and the return will be zero. The only rational way
to play the game that way is to hope for an acquisition.

That's why I look at detailed parts of business models like this, it helps
elicit the overall picture in the same way functional a test case elicits
overall product health. There is an art to ensuring proper overall coverage
with multiple tests.

> I don't think they didn't know they were burning their reserves, that their
> cost structure was unsustainable.

This is where I disagree and why I wrote the analysis. I think the company
didn't understand they were selling their product for a _marginal_ loss:

> "Long story short, the infrastructure was paying for itself through
> subscription revenues."
> [https://news.ycombinator.com/item?id=7041640](https://news.ycombinator.com/item?id=7041640)

> "AWS infrastructures costs were already being covered by subscription
> income."
> [https://news.ycombinator.com/item?id=6676906](https://news.ycombinator.com/item?id=6676906)

From the numbers neither statement was true, and from the confidence in the
tone it seems like they didn't know for a while. Subscriptions did not cover
AWS costs. It looks like it might have become known internally when asked
directly from others taking a look:

> "The reason we were getting closer and closer to being positive on variable
> costs ... is, yes, improved monetization, but more importantly AWS
> optimizations."
> [https://news.ycombinator.com/item?id=7043555](https://news.ycombinator.com/item?id=7043555)

------
tlb
This seems to show the system working. Everpix was a reasonable idea with good
execution, but nobody could see how it would be eventually profitable. That it
didn't get funded is evidence that we're not in a bubble.

~~~
dcohenp
I didn't quite read a lot of skepticism about it being "eventually
profitable". Rather there was more hand-waving about "not being a $100M - $1B"
business, which is something else altogether. (Sort of depressing IMHO; does
every new web business need to be Facebook-scale these days to be worthwhile?)

~~~
slykat
"does every new web business need to be Facebook-scale these days to be
worthwhile?"

To a VC yes. That's the business model of their fund. I think if Everpix had
attracted a different class of investors they might have been more successful
fundraising.

~~~
teleclimber
Exactly. Everybody always talks about getting VC funded, but there are plenty
of good money-making businesses that a VC wouldn't touch but that could be
great for a smaller investor. Usually these businesses charge for their
products and have demonstrated that people are willing to pay.

------
esharef
Thanks so much for making this public. You're putting yourself out there for
our benefit and so that we can all learn (and not feel quite as shitty when we
get similar emails). Thanks.

------
wellboy
Idea: Make a post-mortem startup website, where recently deceased startups can
open-source their documents to the whole startup community.

Pivot for everpix maybe?

This somehow has the same vibe as the becoming of Mattermark to me.

------
WhitneyLand
Why not build such a service on top of a cloud storage provider platform?

Their own servers would run their code, searching/indexing, and thumbnails up
to 1080p which are very small.

A user's cloud account would only be used for the originals and to generate
search indexes/thumbnails as needed.

~~~
viach
Good point, just thought the same thing (example:
[http://www.kickstarter.com/projects/jmathai/openphoto-a-
phot...](http://www.kickstarter.com/projects/jmathai/openphoto-a-photo-
service-for-your-s3-or-dropbox-a)).

------
shopinterest
I swear all VC's must have these email responses in Macros already. Everyone
who passes on investing, even with great but not insane traction, replies to
you in the exact same way. Word-by-word. The masters reply with enough wiggle
room to come back if you do become hot eventually.

------
danabramov
Thank you for releasing this and making such a valuable tribute to the
community. If more companies did that, hopefully we wouldn't make the very
same mistakes over and over again.

By the way, what other startups have published such detailed postmortems, if
any?

------
bayesianhorse
The founders ran out of Ketracel-White to give to their troops...

------
andyl
"You guys are awesome and we wish you all the best."

Fundraising is such a giant waste of time. (I've been there)

