Death By Overfunding: Fab.com

Moral of the Story

As we have seen in the case of Gilt GroupeNasty GalGlam Media, and now Fab.com, investors are getting carried away from fundamentals and have been overfunding these companies with the hope of the large traffic turning into revenue.

Entrepreneurs should realize that pumping huge amounts of venture capital into building audience that cannot be monetized is a very bad business strategy. Fab.com pivoted several times to find the elusive positioning that would result in hyper growth. It just took a couple of years for the company to figure out that this was just a suicide mission.

Heavily funded companies with large audiences acquired through reckless spending and without a sustainable, fundamentally sound business model, eventually die.

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More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

Sramana Mitra is the founder of One Million by One Million (1M/1M), a global virtual incubator that aims to help one million entrepreneurs globally to reach $1 million in revenue and beyond. She is a Silicon Valley entrepreneur and strategy consultant, she writes the blog Sramana Mitra On Strategy, and is author of the Entrepreneur Journeys book series and Vision India 2020. From 2008 to 2010, Mitra was a columnist for Forbes. As an entrepreneur CEO, she ran three companies: DAIS, Intarka, and Uuma. Sramana has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology.

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