Member Article

Karhoo isn’t the first and won’t be the last high-profile tech startup to implode

Last week was something of a dark week for the capital’s business community as two widely touted tech startups with strong roots in London closed their doors.

Taxi comparison app Karhoo and social messaging app Yubl, both recipients of multi-million-pound funding rounds, failed to raise the necessary funding required to keep their businesses running and had to be shuttered as a result.

Picking over the bones of the failed enterprises, commentators and insiders pitched in with their own theories as to how two noteworthy startups could crash and burn so quickly.

Not least Karhoo, whose practice of handing out seemingly infinite free rides to users came in for particular criticism, as well its founder Daniel Ishag’s reluctance to correct those regurgitating a particularly spurious $250m funding estimation.

Startups, and particularly those startups gunning for break out success, must always skirt the borderline between hype and delivery.

Self-promotion and elevator pitches are a key part of any entrepreneur’s repertoire, especially in such a bustling and crowded marketplace as London, and the hype machine only intensifies when venture capital funding is at stake.

Ishag’s happy peddling of the $250m figure helped to inflate the New York-headquartered firm’s stature and was a key component of its myth making, which posited the app as an Uber killer that would corrall local cab firms as foot soldiers in its fight.

Keep the hype wheel turning and eventually the funding will become self-fulfilling. Before anyone realises the confidence trick, the app will have grown to a billion-dollar global behemoth too big to fail.

However, as Karhoo’s staff found last week, often this hype can get away from those fanning its flames by exaggerating a company’s true worth and setting up a spectacular and rapid fall when the truth eventually comes out.

The problem for startups jostling for ever more hotly contested pots of VC cash is that hype and promotion is the rocket fuel that separates an also-ran from a unicorn.

As the old adage goes, you can have the greatest product in the world, but if no one knows about it or you fail to communicate its worth, it’s worthless. In a promotion vacuum, the likelihood of your business getting off the runway is about as likely as someone in central London having paid full price for a Karhoo ride in the last 12 months.

By contrast, a whirl of publicity can be enough to get a business idea in the air, but if the product is lacking then it can spectacularly burn up in the upper atmosphere once the money runs dry.

Hitting the sweetspot between hype and product is an inexact science that is often cracked accidentally rather than by design, and there are certainly no shortage of charismatic Chief Executives and founders willing to claim that their platform or app or innovation delivers on both counts.

Which is why Karhoo was not the first to go out in a blaze of glory and will definitely not be the last.