The $45M Tech Bubble Overexpansion

At the height of the dot-com boom, we led a $45M Series B in a B2B software company that had impressive revenue growth but unsustainable burn rate. The market was euphoric, valuations were sky-high, and due diligence was rushed.

The company had grown from $2M to $15M in revenue in 18 months. Every competitor was raising massive rounds. The founders presented a plan to reach $100M revenue in 24 months by expanding to 12 new markets simultaneously. Our partnership was split—three partners urged caution, but the lead partner (myself) pushed forward, convinced we'd miss the opportunity. We justified the valuation using "strategic value" and "market positioning" rather than fundamentals. The board approved within two weeks, half the normal timeline.

Within 6 months, the market crashed. Customer acquisition costs tripled as enterprise budgets froze. The company had hired 200 people in 4 months and signed 5-year office leases in 8 cities. By month 9, revenue had flatlined at $18M while burn rate hit $6M/month. We attempted a down-round, but no investors would participate. The company tried to pivot to profitability by cutting 70% of staff, but the damage was done—customer trust evaporated, key engineers left, and strategic partnerships dissolved. We lost the entire $45M investment when the company shut down 14 months after our investment.

• Implement "cooling off period" - never make investment decisions in less than 30 days regardless of market pressure
• Require unanimous partner approval for investments over $25M
• Build financial models with 3 scenarios: base, conservative, and crisis - fund only what works in crisis scenario
• Red flag any plan requiring >100% headcount growth in 6 months
• When partners disagree strongly, default to "no" and revisit in 60 days
• Never justify valuation with qualitative terms like "strategic value" without quantitative backing