Once considered a “unicorn” (a privately held company that’s valued over a billion USD), WeWork provides shared physical spaces for companies, renters, and workers. In 2019, the company operated out of 32 countries and employed over 5,000 people. To its investors, who were instrumental in raising $12.8 billion for WeWork, between its valuation of $47 billion and its impending IPO, it seemed like a financial windfall waiting to happen.
When the company prepared to file for its IPO in September 2019, things really fell apart. After the company filed their S-1, it was revealed the company was burning through cash. CEO and founder Adam Neumann was revealed as enforcing odd practices like having unreasonable voting power and forcing the company to pay him $6 million to use “We” in their logo. The value of the company dropped to less than $10 billion, $2 billion less than the money poured in it. Subsequently, the IPO was call off. Now desperate to conserve cash, the company laid off 1/3 of their employees. And in response to harsh criticism about his leadership style, Neumann resigned from his position. However, he was retained as a company consultant for $46 million a year while many of his former employees were out of jobs with no benefits. All in all, the fallout was extreme with WeWork widely considered to having made one of the worst attempts to go public, ever.
Currently, amid the Coronavirus pandemic, it seems unlikely WeWork will redeem itself. As of mid-year 2020, the entire co-working landscape has been severely impacted by the virus, with consumers preferring to stay safe at home. As a result, Wework recently laid off 314 employees in New York City alone. 1, 2
What conversation about startup failures and scandals would be complete without mentioning Theranos? At one-point Theranos, conceptualized in 2003 by founder Elizabeth Holmes, was considered to have made the impossible possible: the company claimed it had developed a breakthrough proprietary technology that allowed rapid blood tests to be performed using a fragment of the blood normally required. To put the this into perspective, Theranos said they could successfully perform hematological tests with 1/100 to 1/1000 of the blood normally required. As a result, Theranos secured over $1.1 Billion in funding and, at its peak, was valued at $9 billion.
In actuality, the only groundbreaking action Theranos had taken was committing widespread crimes to hide the fact their technology was useless. The scandal first came to light when, in 2015, Professor John Ioannidis wrote that the company had no peer reviewed data, a field rarity and a bright red flag. Subsequently, scrutiny intensified for good reason. The FDA (among others) found Holmes had falsified results and repeatedly lied to investors and buyers alike about the efficacy of her technology; in many cases, due to it not performing, Theranos had to rely on the old-fashioned blood tests they had promised to replace to get accurate results.
Former employees alleged said Holmes fostered a workplace of intimidation and fear; those who questioned the failure and holes in the technology being touted, like former Apple employee Avie Tevanian, were pressured into resigning. Scientists were not allowed to fully view the products they were working on, adding to the mistrust and confusion. In 2017, Fortress Investment Group provided a much needed $100 million dollar loan to Theranos, who had lost customers, like Safeway, and was facing lawsuits, including one from former customer Walgreens. In 2018, the company liquated, rendering nearly $730 million in funding worthless, and Holmes, along with former COO Ramesh Balwani, was indicted. Both are set to go to trial in the summer of 2020 and face up to 20 years in prison for various counts of fraud.3, 4
3. Uber Technologies, Inc.
Former startup Uber hasn’t always had an easy of a ride as it promises users. Founded in 2009, the ride hailing platform has expanded its services to ridesharing, food delivery, and more across 785 global locations.
One of the many scandals to mare Uber in 2017 were the allegations of a highly sexist workplace that marginalized its women. In February 2017, former engineer Susan Fowler published a blog post5 detailing her experience with sexual harassment while at Uber. After she was propositioned for sex by her new manager, she screenshotted his messages and went to HR. However, after doing so, she ran into constant roadblocks which she saw as revenge for reporting in the first place. These included everything from having her request to transfer teams denied to being threatened with termination when she continued to report harassment. When the story broke, it was reported Uber cofounder Travis Kalanick was aware of the issue, adding to the public outrage.
Preceding the #Metoo movement, the scandal still picked up steam, especially as more employees publicly came forth with similar tales of harassment and discrimination. Senior Vice President of Engineering Amit Singhal resigned after it was revealed that he hadn’t disclosed a previous sexual harassment claim against him filed during his tenure at Google. With pressure mounting, the company hired Eric Holder to perform an investigation which resulted in 20 employees being fired. And with shareholders calling for his resignation and the public threatening to boycott the app, Travis Kalanick stepped down as CEO in June of the same year.6
Founded in 2015, Away, a startup that promised luggage “built for modern travel”, quickly gained traction in the luggage retail industry. In a few years, the women founded start-up raised over $31 million in funding. It also opened physical locations in the trendiest cities, like as London and New York.
But in late 2019, an article by the Verge revealed that CEO and founder Steph Korey openly bullied and belittled employees. When she discovered that a group of LGBT and Black employees had created a “safe space” on Slack to discuss marginalization of minorities at Away, Korey fired them without warning for using “racist” “hate speech”.
Korey insisted that employees only post publicly on Slack, forbid employees from directly emailing one another, and limited their ability to private message under the guise of “transparency”. Former employees stated the insistence on everything public was an intimidation tactic; Korey would regularly humiliate employees on open forums for all to see. At the same time, she vastly limited PTO and vacation time of employees, claiming doing so would benefit their careers. When two employees didn’t cancel their already made vacations after she forbid taking future time off (but said that already planned vacations would be honored), she flipped out on them. 7
After the news on her management style received widespread criticism, Korey offered to step down as CEO, stating she was “appalled” with herself. Former Lulumelon CFO Stuart Haselden was hired to replace her. But only weeks later, she reversed her decision and joined Haselden as “co-CEO”.8
One of the few female founded startups, Thinx is a manufacturer of feminine hygiene products. From its inception in 2014, many of its products have tackled the issue of menstruation by providing “spill” proof underwear. Promoted as innovative by TIME and lauded as necessary by women, Thinx initially garnered controversy when it published visually suggestive adds to promote its products, like the peeled half of a citrus fruit and a dripping, cracked egg.
In 2017, Thinx was back in the news again when co-founder Mika Agrawal was accused of harassment by a former employee. The employee alleged Mika participated in an array of offenses including, but not limited to, commenting on the size of employees’ breasts, detailing explicit sexual encounters, videoconferencing employees in various states of undress, and touching her employees’ bodies without their consent.
HR at the company was considered a joke with Agrawal herself handling many of the discussions regarding pay, treating employees who asked for more conversation with passive aggressiveness and blowing up at them for not being grateful for what they had. Similarly, maternity leave was dismal, something that rang harshly hypocritical for a feminist company that, supposedly, championed women. Amid the array of accusations, which also included her bullying an employee into exposing her nipple piercing and threatening the jobs of anyone who spoke out against her ideas, Agrawal was also accused of being ageist, sexist, and fat-phobic. As a result of the outcry, Agrawal stepped down from her position and Thinx resolved to do better.9
H.R software start up Zenefits had a promising start. It raised nearly $600 million from investors in initial funding. By 2015, the company was valued at $4.5 billion, making it another unicorn, and an investor darling. By the year end, it had a foothold on its market share, small businesses, with over 2000 clients using its services, with plans to grow revenue by 500 percent of the previous year’s revenue of $20 million in the coming year.
However, as the company grew, so did the willingness of employees to break rules. A leaked email to employees reprimanded them for having sex and drinking in office stairwells. Zenefits would later deny the claim, stating they shared the stairwell with other companies. But this was only the tip of the iceberg. In 2016, an in-house investigation uncovered that cofounder Parker Conrad had created a custom web browser that allowed employees to skirt the exhaustive training requirements needed to sell insurance.
When the scandal was uncovered, the California Department of Insurance fined the company an eye watering $7 million. Zenefits also settled with states like Washington, South Carolina, and Texas for participating in licensing violations. Employees were fired in droves to clean house with 17% laid off after news of the scandal broke. And as a result, Conrad immediately stepped down as CEO (notice a pattern here?).10
Bouxtie is lesser known than the other startups on this list. As a company focused on disrupting the $100 billion-dollar gift card market by allowing users to personalize gift cards, it was never going to be as groundbreaking as startups with novel and innovative solutions. Still, Founder and CEO Renato Libric was able to get $4.5 million in funding from Venture Capitals and investors by the mid 2010’s.
However, investors wanted to see proof that the company could make a profit and that their money would eventually be returned, in multiples. It was here that Libric, desperate to secure more in funding, jumped off the slippery slope from old fashioned hustle to criminal activity. He lied to potential investors, stating a large public company was interested in acquiring Bouxtie for $150 million and then forged the signature of an executive from that company on the paperwork he presented to secure funding.
He also forged bank statements for Bouxtie, stating that it had $2 million in the bank. The reality was that it had about $7,000. While he was able to convince investors and secure funding for $1.5 million, his fraud was eventually discovered. After he was found out, Libric didn’t just step down. He was sentenced to prison.11
8. Eat Just (previously known as Hampton Creek)
At its inception in 2011, Hampton Creeks pitch was simple: producing completely plant-based foods that managed to feed the health-conscious craze of the 2010’s. With popular products “Just Mayo”, and “Just Egg”, the startup targeted consumers passionate about veganism or healthy lifestyles. The company eventually received over $240 million in funding from high profile investors like Facebook co-founder Eduardo Saverin.
But in 2016, suspiciously close to when the startup was scheduled to go through a round Series C funding, the company instructed its contractors to buy back “Just Mayo” products from retailers like Safeway and Walmart. Leaked emails showed that upper management was aware of and encouraged the buyout. Employees were told to call stores carrying the product and inquiry about them to show consumer demand and impress potential investors. Faced with a potential criminal investigation, the CEO claimed the buyback was simply for product quality control, convincing no one. The company eventually rebranded in 2017 as Eat Just.12
Fitting in with others on this list, Fintech startup Mozido Inc. was considered a unicorn. With over $300 million famous Silicon Valley investors and about $55 million from 200 individual investors for funding, Mozido reached a peak valuation of $5.6 billion.
This all changed after a 2016 expose, published by Forbes, raised serious concerns about the legitimacy of the company and what the funding was really paying for. Predictably, investors clamored for founder Michael Liberty to tell them where their money had gone. Eventually the truth was revealed. Between 2010–2017, less than half of the money raised for Mozido from individual investors reached the company. Instead, Liberty allegedly used shell companies to whittle away cash to pay for everything from alimony to his ex-wife to decorating his property. Liberty, who previously spent four months in jail for campaign finance violations, is currently facing multiple counts of fraud and up to 20 years in prison. 13, 14
10. GitHub, Inc
One of the more beloved startups was GitHub (as of 2018, it became a subsidiary of Microsoft after being acquired for $7.5 billion) who provided users with, among other attributes, an open source software development platform.
But in 2014, programmer Julie Ann Horvath publicly accused the company of having a hostile workplace that promoted harassment against women. In particular, she accused then CEO Tom Preston Werner and his wife, Theresa, of employing intimidation tactics like the latter claiming she had “spies” in the company, telling Horvath she couldn’t quit and write bad things about them, and the former berating Horvath for dating a coworker. Horvath also had code erased by a vengeful coworker who she had previously turned down for a date and relayed a work environment where women were often belittled, sidelined, or sexualized.
With only 20% of GitHub employees female, Horvath’s claims shouldn’t have been beyond belief. Indeed, after initially denying her claims, GitHub launched an investigation that they were truthful. But what was remarkable about this case was the amount of vitriol, posted on anonymous platform Secret, poured at Horvath from GitHub employees. Some celebrated her leaving, others accused her of lying, and some even questioned if women belonged at the company at all. All in all, the incident left an ugly aftertaste for the company. And, yes, Werner resigned as a result.15