Backplane, founded by Lady Gaga's business manager Troy Carter, aimed to create social networks for brands, starting as a fan site for Lady Gaga. Despite raising $18.9 million, the startup struggled with high burn rates and investor pressures, leading to its eventual asset sale and rebranding efforts.
What Was Backplane?
Backplane's main product was a platform for creating online communities around specific interests, integrating social media feeds. Its unique value proposition lay in its ability to unify various social media channels into one cohesive network. Notably, Backplane raised $18.9 million and filed a patent for a content-sharing application.
What Happened to Backplane?
The story of Backplane is a classic example of a startup's rapid rise and eventual fall, marked by several critical phases:
Initial Vision and Founding: Backplane was founded in 2011 with the ambitious goal of creating social networks for brands, starting as a fan site for Lady Gaga. This vision attracted significant attention and set the stage for its early success.
Early Funding Success: In 2012, Backplane raised $12.1 million in a Series A funding round from top venture capitalists, including Sequoia and Google Ventures. This funding round valued the company at around $40 million, showcasing investor confidence in its potential.
High Burn Rates: Despite the initial success, Backplane struggled with high burn rates due to lavish spending on lifestyles and expensive offices. These financial missteps drained resources and hindered the company's ability to make significant progress on its product.
Failed Pivot and Funding Issues: The company attempted to pivot to a new product called Place.xyz, but it was too late to turn things around. Additionally, a last-minute withdrawal by a Chinese backer from a $2.5 million funding round further exacerbated the financial strain.
Leadership and Management Challenges: Leadership decisions, including the founders' extravagant lifestyles and the operation of two fancy offices, contributed to the high burn rates. Although a new CEO, Scott Harrison, was brought in to cut costs and pivot the business, these efforts were insufficient to save the company.
When Did Backplane Shut Down?
Backplane officially shut down on April 11, 2016. The company ran out of money due to high valuations with exploitative terms, lavish lifestyles that increased burn rates, and a lack of product progress.
Why Did Backplane Shut Down?
High Burn Rates: Backplane's financial mismanagement was evident in its extravagant spending, including maintaining two fancy offices and lavish lifestyles. This led to a high burn rate of $160,000 per month, even after restructuring efforts. Such financial practices drained resources quickly, leaving little room for product development or strategic pivots.
Exploitative Funding Terms: The company raised funds at high valuations with tough liquidation preferences from big-name venture capitalists. These exploitative terms scared away potential new investors, making it difficult for Backplane to secure additional funding when it was most needed, ultimately contributing to its financial collapse.
Product Development Failures: Despite raising $18.9 million over five years, Backplane struggled to make significant progress on its product. The company attempted to pivot to a new product, Place.xyz, but failed to secure sufficient funding and market traction. This lack of product advancement was a critical factor in its downfall.
Last-Minute Funding Withdrawal: A critical blow came when a Chinese backer dropped out last-minute from a $2.5 million funding round. This unexpected withdrawal exacerbated Backplane's financial strain, leaving the company unable to meet its obligations and forcing it to sell its assets.
Leadership and Management Issues: Leadership decisions, including the founders' extravagant lifestyles and poor financial oversight, contributed to the company's high burn rates. Although a new CEO, Scott Harrison, was brought in to cut costs and pivot the business, these efforts were insufficient to save the company from its eventual collapse.
Lessons Learned from Backplane's Failure
Financial Discipline: Maintain strict control over spending to avoid high burn rates that can quickly deplete resources and hinder long-term sustainability.
Realistic Valuations: Avoid accepting funding with exploitative terms that can scare away future investors and create financial strain.
Product Focus: Prioritize continuous product development and market fit to ensure the company remains competitive and relevant.
Leadership Accountability: Ensure leadership practices financial prudence and strategic decision-making to foster a stable business environment.
Contingency Planning: Always have backup plans for funding and operations to mitigate risks from unexpected financial setbacks.
Investor Relations: Build strong, transparent relationships with investors to secure ongoing support and confidence in the company's vision.
Adaptability: Be prepared to pivot quickly and effectively in response to market changes and new opportunities.
We Shut Down Startups
Backplane's failure underscores the complexities and challenges of winding down a startup, from managing high burn rates to dealing with last-minute funding withdrawals. If you're facing similar hurdles, Sunset can help you navigate the legal, tax, and operational burdens seamlessly.
Don't let the stress of shutting down a startup overwhelm you. Book a demo with Sunset today to ensure a smooth and efficient wind-down process, allowing you to move on to your next venture without penalties or liabilities.
.png)
