It seemed to happen overnight: Airbnb was a household name. The San Francisco-based startup, founded in 2008, took over the apartment rental scene, not only in the US but also abroad, making it harder for similar German competitors, like Wimdu, 9Flats and Gloveler, to keep up.
But Gloveler’s founders, Armin Harbrecht, Andreas Sperber and Marco Umfahrer, had all jumped ship before Gloveler started sinking.
“Of course we didn’t know that two years later the company would go into insolvency,” Sperber said. The 33-year-old entrepreneur left the company as a manager at the end of 2014. As did the 33-year-old Harbrecht.
Umfahrer had already left the management team in 2012 and remained a shareholder.
According to Harbrecht, Gloveler was breaking even in 2012. “We reached this step where we wondered what kind of impact we can make in this setting with the company and what kind of impact can we make if we leave?” Harbrecht said. “In five years from now where can we be?”
The decision to leave came after evaluating the project and analyzing the current situation, Sperber said. “Not all of us wanted to go in the same direction and not everybody had the same goals,” he continued.
Despite the responsibility that comes with having five business angels, one institutional investor and 15 employees, Harbrecht felt that once the decision had been made, which in his opinion was the hardest part of the entire process, it boiled down to the execution: “This was a clear path and it was a liberating feeling.”
A new manager, Frank Hofmann, took over Gloveler in 2015, while Harbrecht and Sperber stayed on as shareholders.
Retravel co-founder Andreas Höcherl expressed a similar feeling to Harbrecht. He said he felt “relieved to get rid of the responsibility,” but that “sadness and regret arose later in the process.”
The 46-year-old started Retravel, a company that let travelers sell their non-refundable travel bookings, in 2015 with Svenja Gossing. Despite capturing the interest of the Axel Springer Plug & Play accelerator (ASPP) in Germany, they closed up shop 15 months later.
“They accepted it; the only thing I think they were not amused about was the fact that we stopped after only one year,” Höcherl said.
Christian Nagel, co-founder of Earlybird, an international venture capital firm in Germany, who has worked with startup founders for 19 years, said aborting a venture rarely comes as a surprise for those involved.
“In most cases you are somehow aligned that it is not working perfectly,” Nagel said. “As venture capitalists, we always say we cannot back this any further. It is our duty to stop losses.”
For Retravel, with a two-sided and even three-sided marketplace, the decision to stop was due mostly to “a lack of considerable traction on the demand side,” Höcherl said. “The input channel worked, the output channel not equally well.”
The output channel in this case was reselling the bookings.
“We were also successful in many cases, but this was one of the first things were we saw, ‘oh, this is really difficult,’” Höcherl said.
Part of Nagel’s work involves a hand-in-hand approach with the founder’s team to find a solution when these warning signs appear. “Maybe sell the company, merge with a competitor… There are all kinds of things you can do here to at least give [the company] a home,” Nagel said.
In some cases there is the option of bridging, or providing enough money to extend the project for another six months in hopes of reaching relevant milestones.
“We are willing to bridge if there is a good likelihood of follow-on financing,” Nagel explained. “But there is a clear message that there is no bridge forever. The bridge has to end.”
The likelihood of receiving follow-on financing boils down to a company’s key performance indicators, or KPIs, Nagel said. These KPI’s allow stakeholders to assess a fledgling company’s success; they are often specific to the activities in which the company engages and provide a quantifiable measure.
“The sooner we see whether a company is moving in the right direction based on numbers, the sooner we can act,” Nagel said. “Not just wait and hope that things will change while the money lasts.”
After Gossing and Höcherl assessed Retravel’s KPIs with Axel Springer and noted their dwindling bank account they decided to abort the venture.
“Aborting the venture actually was a risk-free decision,” Höcherl said. For Höcherl, Retravel was more of a side project as he worked full-time for a global logistics company.
“Some people said ‘You stopped too early, Airbnb also took at least eight years to really take off,’” Höcherl said. “A real entrepreneur would just carry on.”
After informing Axel Springer, their sole investor, of the decision, the process moved quickly. They stopped the service and created a post-mortem page; Höcherl designed it himself. There were no employees to let go, other than a developer who was paid a regular fixed-term salary, and no office lease to cancel.
Höcherl also worked with his tax advisor and a notary, which together cost him around 11,000 euros (12,099 USD) – a process he described as time consuming and annoying. But the high costs of the tax advisor were due to a “bookkeeping mess,” Höcherl said. The result of exclusively focusing all his attention on Retravel’s operations, he explained.
According to Nagel, this process takes an average of six to nine months.
Then the liquidation of the company was announced in the commercial register in September 2016. “It will officially take another twelve months until the company has ended in a legal sense,” Höcherl said.
All in all, “it was not a big deal,” Höcherl said, who finds words like unsuccessful and failure are too judgemental. “For us, it was not a failure,” he said. “It was an exciting journey.”
Companies similar to Retravel have since sprouted up: “I am still really into the idea. I wish… I really wish them the best of luck,” Höcherl said.
Yet the possibility of founding another startup is still on Höcherl’s mind – a not an uncommon occurrence among entrepreneurs. “My fire is still burning and this is not the end yet,” he said.
Nearly half of all founders in Germany have established at least one startup in the past, according to the 2016 German Startup Monitor report.
And that is exactly what colleagues Armin Harbrecht and Andreas Sperber did when they left Gloveler. A year later they founded Aramido (German), an IT-security consulting service.
Nagel has also seen the phenomenon at Earlybird. “We are still friends with almost all the companies that failed or did not have the success we were anticipating in the beginning,” he said. “We see entrepreneurs coming back.”