Social recruitment business Branchout raised $49m and grew to 33m users. Today Techrunch is reporting that they are in a firesale situation.
I think there are two lessons here:
- Growth without engagement is fragile. Branchout did an amazing job of attracting users to the service, but they used spammy tactics and too few of those users became active. Rapid growth without a user story that resonates widely spells danger for investors, particularly when acquisition methods are on the edge.
- Platform dependency is a killer. Branchout collapsed when Facebook banned the Wall Post method they were using and many other companies which depended on a single platform have suffered the same fate (Google’s algorithm changes have claimed many casualties). Caveat: dependency can be ok when there is a clear alignment of interests between the platform and the startup. In this case there was no alignment. Branchout was hurting the Facebook experience rather than helping it.
Of these two lessons avoiding platform dependency is the easier for investors to observe. Growth’s intoxicating promise is that the business can be MUCH MUCH bigger tomorrow and that makes it easy to suspend disbelief when areas of the business aren’t working (yet…). Fortune generally favours the brave. In venture capital that usually means those that make risky investments, but in cases like this it means having the courage to stand aside.