“The kiss of death”: Investors in collapsed startup Shoes of Prey set to lose $35 million
Wednesday, March 13, 2019/
Investors who poured over $35 million into once-promising fashion startup Shoes of Prey are likely to be left empty-handed, with firms who invested in the business warning contributors they are not expecting any return from the liquidation process.
Shoes of Prey, a company that allowed women to order customised footwear at a cheaper price than typical bespoke shoes, entered liquidation yesterday, ending months of uncertainty about the company’s future after it was put on “pause” in August last year.
Co-founder Michael Fox penned a blog post in light of the collapse, blaming the business’ downturn on its failure to crack mass-market adoption, high operational costs and ethical benchmarks for the company’s shoe production.
“As with our customisation business, while there were strong early signs that the sizing and short-run manufacturing markets might work for us, we weren’t able to clearly prove that these customers were willing to pay us enough at a large enough scale to cover our fixed costs,” Fox said.
“And with the money we’d raised to date it wasn’t possible to raise a round of funding to pursue these avenues.”
According to investment tracking website Crunchbase, Shoes of Prey raised $US25.9 ($36.7 million) over its 10 years in business, with a large portion of that coming from major investors Blue Sky Venture Capital and Greycroft Capital. Other investors included Mike Cannon-Brookes, Blackbird Venture Capital and Bill Tai.
However, these investors are likely to be left without return, with the liquidation of the business unlikely to recover enough funds to repay invested capital. In a statement to StartupSmart, a spokesperson for Blackbird Venture Capital said while the firm was proud to have been a part of the Shoes of Prey journey, it was not expecting a return for investors in its fund.
“We are very proud to have been a part of the Shoes of Prey journey and to have worked with the three co-founders: Jodie, Michael and Mike. The fact of venture investing is that more companies fail than succeed,” the spokesperson said.
“The ultimate question of whether shareholders will be paid back any capital from Shoes of Prey will depend on the liquidation process, but given our position in the cap table, we are not expecting any return to the Blackbird fund.”
The spokesperson for the firm said it was disappointed with the loss of capital but noted it was a risk of venture capital investing, and said the company’s portfolio had been set up to be “tolerant of that risk”. The loss to the firm will be less than 1% of the current value of the fund, the spokesperson said.
“The Shoes of Prey investment was an important part of our early years at Blackbird and we are proud of our long association with the founders and team. They built the company with inventiveness, intelligence and integrity … and very nearly pulled it off,” they said.
“The kiss of death”
Blue Sky, a major investor in Shoes of Prey, has also warned investors in the startup they are unlikely to be repaid, reports the AFR. The fund told contributors it did “not believe investors will recover any capital”, though that would depend on the outcome of any sale of the business’ assets.
“The deal team appreciates that is a very disappointing outcome for investors,” the firm said, reports the AFR.
A source close to the company and involved with its investment said this was accurate, saying communication had been sent to investors to “not expect any return of capital”, but noted this should not be surprising to investors who had been following Shoes of Prey’s journey over the past year.
“They were a growth-stage venture-backed business, and they constantly needed to be able to raise in order to survive before they reached profitability, not different to a company like Uber or any other venture-backed business,” the source told StartupSmart.
“They needed to reach a certain scale and get to a certain strength to stay interesting to VC investors, and as growth slowed they became less interesting to VC funds, and that was the kiss of death.”
Fox’s blog post was deemed a “fairly accurate” assessment of why the company collapsed by the source, but they noted there were also failings by the company and its investors to appoint an executive with significant experience growing businesses in the fast-moving consumer goods space.
Liquidators at FTI Consulting are currently assessing the company’s assets and formulating a list of creditors, which reportedly does not involve investors and is mainly comprised of customers holding gift cards for the business.
StartupSmart understands Shoes of Prey struck a significant partnership with a major brand in China in the months prior to the business’ collapse, and the brand is currently the most likely group interested in purchasing the business’ assets out of liquidation.
StartupSmart contacted FTI Consulting but did not receive a response prior to publication.
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