It’s never fun to be on the wrong side of a statistic, and I avoided writing this post for a very long while.
Over 3200 startups have failed in 2023, and every company’s failure is its unique little tragedy, peppered with lessons that entrepreneurs and investors can learn from. I think it’s important we share Chains’, because its specific circumstances and lessons should be shared and perhaps help others succeed where Chains failed.
TL;DR:
Chains grew extremely fast, with the B2C part of B2B2C outpacing B2B. We didn’t fuck up the tech, product or marketing; we fucked up the sort of thing that usually looks important only on PowerPoint.
Maintaining 500,000 users significantly increased the company’s burn rate long before Chains could establish a sustainable revenue stream or secure an investment that would allow it to scale. The company relied entirely on venture capital for operations, and being CeFi, it sat well outside of the Web3 VC investment thesis.
Once it failed to secure the capital needed to operate, Chains.com was put into stasis to prevent damage to its business partners and users.
Chains had few but valuable backers and investors, for which we are grateful. Startups are inherently high-risk / high-reward, and I appreciate every program and investor who allocated their time and resources to support Chains along the way.
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Looking back at what went wrong
It took over two years for Chains to fail. I will be as open as possible about the company’s journey, and I hope that our lessons can help founders avoid some of Chains’ mistakes and learn from some of its successes.
Mistake #1 — Bootstrapping without a path towards profitability
The first mistake is a personal one: I used a significant amount of my own capital to bootstrap Chains, long before I saw a path to profitability or had concrete institutional investor interest. I kept repeating this mistake whenever Chains encountered liquidity issues — keeping the company afloat between investor rounds, loaning it money so that Chains could pay suppliers, consultants, and service providers.
Lesson: If a year in, you feel the company can’t afford to pay you anything, and you can’t point to an exact milestone at which you will be willing to pay yourself, just stop and rethink everything.
Mistake #2: Sitting Outside of the Investment Thesis
When we began conversing with investors, Chains found itself sitting outside the common VC investment thesis, even though Chains aspired to become a company similar to the biggest companies in the DLT space.
Chains aimed to capitalize on the fact that cryptocurrency users have no brand loyalty — users often have multiple accounts and products and use the best services or products available on the market at any given point. Competing meant — building a great product and marketing it well. The value of one’s brand in the cryptocurrency space is mostly the result of having a secure, easy-to-use, and easy-to-find product. Users had the loyalty of a goldfish and would quickly move from platform to platform. We saw this as an opportunity to carve out a market share for a platform with radically friendly products.
Coinbase, Kraken, FTX and, Celsius, CeFi solutions (some of which ended up being billion-dollar scams), were enjoying a meteoric rise, alongside other centralized services for both institutional and retail investors. Even though market leaders were predominantly CeFi, virtually all “Web3 VCs” focused on what they perceived to be Web3, and not the commercial models that have proven themselves to be successful by the likes of Coinbase and Binance. Chains wasn’t DeFi, gaming, L1/L2, stablecoin or an NFT play. VCs were not looking for CeFi plays.
In simple words, investors (LPs) expected capital to be deployed into companies that were very different from what Chains was, and thus, it was not a great fit for anyone’s portfolio.
Despite hundreds of “no”s, since Chains was bootstrapped, it made headway on its product, design, and even traction. The team began hearing a “however” that kept repeating itself — if Chains had enough traction, that would make Chains investable.
Lesson: if you are launching a company that you know to be reliant on venture capital, identify the funds whose investment thesis you fit and gauge their interest as early as possible.
Mistake #3: What’s the opposite of LTV?
Chains reached over 500,000 registered users, tens of thousands of KYCed users, over 100,000 community members, and 33 thousand NFT holders within less than 4 months after launching its platform. It had to stop user acquisition almost entirely — the company didn’t have the resources to manage such a massive user base AND keep developing a product. It also sold CHA and offered utility from day 0, which carried a a significant responsibility of security and support SLA towards its users. We couldn't afford to fuck up — once breach, one wrong deployment, and users would never trust the company again.
The company was heavily invested in ensuring its B2C end was working — even though it’s the B2B end that needed to be developed to generate revenue.
Lesson: don’t acquire more users than you can monetize — instead of positive returns, every user becomes a liability. Chains was, at its core, a B2B2C company — and while it had plenty of end users, it failed at securing B2B sales for monetizing them.
The Endgame
The company was in a strange spot. It has hundreds of thousands of users, was already part of several prestigious startup programs, launched three products, and raised capital from a few prominent angel investors — no longer a good fit for seed-round-focused VC funds. Chains also had a significant burn rate due to early traction and product launches, which was eating into its new product development budget.
Early traction with no sustainable revenue streams put Chains in the following position:
- Chains was no longer an early-stage seed round investment opportunity.
- Chains was spending a lot of resources on managing and supporting its users and paying its various service providers.
- User acquisition was brought to a halt to reduce the burn rate.
- It didn’t have the bandwidth, budget, and team to onboard high-ticket B2B customers.
- It is a B2B2C company, and its B2C maintenance ate into the resources required for scaling its B2B sales.
In August 2023, it all came to a very abrupt end. Chains had to be shut down in a matter of hours to prevent damage to its service providers and users after it was notified that there were liquidity issues that may have prevented the company from receiving the next funding tranche.
Its IP was put in stasis as the company’s management and backers looked into ways of salvaging the value the company held. And that was that. Everything came to a screeching halt.
Closure
It took me a while to write this post because failure feels like shit, and failing at something as visible as Chains.com sucks even more.
There are many thanks to the employees, managers, partners, investors, supporters, and most importantly, users, who took a chance and explored, built, managed, volunteered, designed, shared, and tested a product that was live for a mere few months. I know many gave your honest best, and nothing would have made you happier than seeing Chains.com become a Top-10 cryptocurrency platform.
I hope we all identify and extract something valuable and positive from this experience. I wish you all a wonderful, healthy, peaceful, and happy 2024.
Anderson Mccutcheon
P.S
It is impossible to know what’s next for Chains’ IP. Before shutting operations down, the team made an effort to ensure that there could be a path forward should the company come under new ownership, and this, indeed, may not be the end of the road for what we’ve built.
P.P.S fascinating startup graveyards with many learnings and interesting stories can be found here https://www.failory.com/cemetery and here: https://startupgraveyard.io/
