🤦🏻‍♂️ Your equity matters

Hey Founders,

Welcome to The Runway Ventures — a weekly newsletter where I deep dive into failed startup stories to help you become the top 1% founder by learning from their mistakes with actionable insights.

Let’s get to it! 🚀

☠️ 1 Failed Startup: Alikolo

🚀 The Rise of Alikolo

Founded by Danny Taniwan (a graduate and first-time entrepreneur from Medan) in 2014, Alikolo was an e-commerce marketplace to bring a wide range of products — from electronics to fashion — right to the fingertips of Indonesian consumers.

• The Problem — 🇮🇩 Many Indonesian shoppers faced challenges in finding diverse products online, especially in a market that was still finding its footing.

• The Solution — 🛍️ Alikolo offered a platform where sellers could showcase their goods, and buyers could conveniently browse and purchase items from the comfort of their homes at competitive prices.

  • Alikolo was started at the right time as the online shopping in Indonesia was beginning to explode.

🛒 How Alikolo got started

🤑 By the end of 2014, Alikolo introduced free shipping to incentivise buyers. This campaign made December 2014 Alikolo’s best month ever (USD 50,000) — so they kept going.

Alikolo experienced significant traction, with a growing user base and a variety of products listed on its platform.

While many believed that Alikolo could carve out a niche in the competitive e-commerce landscape of Indonesia, something was off.

📉 The Fall of Alikolo

📉 The spike (short-term sales) from the free shipping promotion wasn’t sustainable. When Alikolo stopped the free shipping promotion in February 2015, the sales went down.

Actually, this was a syndrome to a larger problem faced by Alikolo.

📌 Here’s what happened to Alikolo:

While being passionate is good, being passionate alone isn’t enough to build a sustainable business, and this is what happened to Taniwan. On a side note, I really admired Taniwan’s openness and honesty in sharing his startup journey in the interview with Tech in Asia.

Personally, I think Alikolo is a classic story of how most first-time founders failed (I’m guilty of this) when they got started due to their lack of experience and ignorance of what happened in their industry.

Want to learn more about Alikolo’s downfall?

• This guy’s story of failing in Indonesia is refreshingly honest. Now he’s getting up and trying again.

• 6 Companies That Failed To Make It Through The ‘Middle Mile’

⚠️ 2 Mistakes

Mistake 1: Lack of founder’s experience

Almost all the mistakes made were due to the founder’s lack of experience:

• 💭 Without any research, Taniwan started Alikolo after getting inspired by Alibaba. He didn't even know Tokopedia existed.

• 🙅🏻‍♂️ He raised from angel investors who had no experience in e-commerce.

• 💸 After raising money, he started burning money without cost management, like:

  • Renting an office without knowing that co-working spaces existed.

  • Outsourcing software development to 3rd party service providers which turned out to be frustrating and hard to coordinate.

  • Hiring 7 employees for mostly sourcing vendors.

• 📍 When questioned by VCs, he didn’t know how Alikolo was different from other e-commerce players like Lazada and lacked of clear vision.

• ☠️ He didn’t know how to build a sustainable business when most of the sales came from free shipping promotion.

Mistake 2: Gave the majority shares to angel investors

Taniwan made the fatal mistake of giving a majority stake in the company to his angel investors, leaving him as the minority shareholder and making his company not investable for future rounds of investment.

⚠️ Here’s why this is a fatal mistake:

• Let’s say you raise $100K from an angel investor for 50% (which is crazy). After the pre-seed (angel round), you’re left with a 50% shareholding in your company.

• While this might seem trivial in the beginning, the real problem comes when you want to raise your next round.

• VCs or investors will look at your company structure (cap table), and they’ll require you to allocate 10% (from your shares) as ESOP for future employees. So now you’ll be left with 40%.

• For the seed round, typically the dilution is 20% across the board. So you’ll be diluted to less than 30%.

• This makes your company not investable for 3 reasons:

  • Investors are afraid that you, as a founder, will no longer be financially motivated to run the company.

  • You’ll not be able to raise the next round (Series A) given your minority shareholding.

  • If you can’t raise future rounds, VCs won’t invest in your company in seed round since they are looking for a 100x outcome from their investment.

🧠 3 Lessons Learned

Lesson 1: Do your homework

Before starting a company, doing research is a non-negotiable, period.

The lack of awareness and understanding of the competitive landscape and industry could lead you to build a just-another-one business without any unique selling proposition (USP).

Lesson 2: Burning cash isn’t a long-term strategy

Alikolo’s brief success came from a free shipping promotion, but when they pulled the plug, sales dropped immediately. This was a clear sign that the business wasn’t sustainable, not to mention other overhead costs the company was incurring back then.

Lesson 3: Your equity is your power

Never underestimate the power of equity. If investors ask for way higher equity than the market standard, they are not investors, they are sharks — and sharks are dangerous 🦈

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That’s all for today

Thanks for reading. I hope you enjoyed today's issue. More than that, I hope you’ve learned some actionable tips to build and grow your business.

You can always write to me by simply replying to this newsletter and we can chat.

See you again next week.

- Admond

Disclaimer: The Runway Ventures content is for informational purposes only. Unless otherwise stated, any opinions expressed above belong solely to the author.