For many in Silicon Valley, the rapid rise and precipitous fall of Secret, the prominent start-up that recently closed its doors, will most likely serve as a cautionary tale of how not to run a company.
For Google Ventures, one of Secrets earliest backers, it will also be a reminder of the type of company not to invest in.
The product of two former Google employees, David Byttow and Chrys Bader, Secret attracted intense media interest early in its life. The app let users anonymously share secrets to their network of close friends and friends of friends, an activity that quickly caught on among founders, investors and the media of Silicon Valley. It also helped that Secret took some early rounds of funding from Google Ventures and Kleiner Perkins Caufield & Byers, two big venture capital firms.
After the flurry of attention and just a few months later, Secret opted to raise another round of financing, this time seeking $25 million. Bill Maris, managing partner of Google Ventures, did not think it was a good idea and the company did not participate.
We advised them against it, Mr. Maris said in an interview, referring to Secrets leaders. We told them they didnt need the money. And raising that much money that soon, it was going to be impossible to meet the expectations in the future.
The discussion could be considered a case of life imitating art, or perhaps vice versa: In a recent episode of Silicon Valley, the satirical HBO series, a young start-up founder is offered millions of dollars from multiple venture capital firms at high valuations. Ultimately, the founder is advised to instead accept a lower offer, in order to make future funding rounds more achievable and growth targets reasonable.
That is not what the founders of Secret chose to do. The company completed its $25 million financing led by Index Ventures and Redpoint Ventures, along with a variety of individual angel investors. In that round, the two founders each wanted to take $3 million off the table for themselves, a practice that is commonplace for more mature companies, but less so for very young start-ups.
Its like a bank heist, Mr. Maris said. Thats not how you do a start-up.
Mr. Byttow declined to comment. Mr. Bader did not respond to a request for comment.
Not joining the $25 million round proved to be a wise choice for Google Ventures. Downloads of Secret declined over 2014, according to App Annie, an app analytics service. Secret redesigned its entire app to look like a near-perfect clone of Yik Yak, a competing service, but traffic did not improve. Many employees, including Mr. Bader, left the company.
Last week, Mr. Byttow said he was shutting down his company, and would return the remainder of the money to the venture capital firms. Neither Mr. Byttow nor Mr. Bader have said if that includes the $6 million the two of them took off the table and deposited into their bank accounts.
Mr. Maris, of Google Ventures, said he does not know what the two founders are doing with the money now, but thinks they should include that sum in what they return.
I think they should return all the money, he said. Some went to taxes, some went to a red Ferrari, which is apparently now sold.
More broadly, Mr. Maris said that the founders eagerness to capitalize on their buzz revealed characters that were distinctly not Google-y.
It was so egregious and so obvious that our values were not aligned, he said. They hadnt done anything. They got some press. They hadnt built anything sustainable.
But the venture capitalist also has kinder words for the entrepreneurs. In a follow-up, Mr. Maris added that the Secret founders could have let the clock run out and lost all the money, but they didnt, and the braver thing to do is to return the money, which is what they are saying they will do.
Mr. Maris also later posted online that his views have evolved and that he wanted to give the founders respect for their hard work on Secret. David is doing a lot to make it as right as he can with his investors and employees, Mr. Maris wrote.