This article also appeared in Finweek Magazine in their 28-Feb-2013 issue
In 1999, the Webvan Group promised to transform the grocery shopping industry. Thanks to an über-successful IPO and other sources such as venture capitalists, it raised a staggering $1.2bn in start-up capital, rivalling big players like Amazon.com. Fast forward to 2001, when Webvan went bankrupt, barely 18 months later. The cause? It ran out of money.
How is this possible?
When investors inject capital into a business, they want a return on their money. And the expectation is that rapid growth will usually fuel this return. Americans even have an expression for fast-growing firms: “gazelles” are publicly traded companies that have grown at least 20% for each of the previous four years, kicking off with US$ 1m or more in sales.
But sometimes, growing too quickly can actually be bad for business. Continue reading