How Quickly a "Genius" Startup Can Tank

Bloodhound had everything going for it. TechCrunch once hailed the tradeshow app as "genius" and Peter Thiel led a $3 million investment round in the "blowing up" company. So when a landlord drove out a popular arts collective from its home in the heart of the San Francisco's Mission District, Bloodhound was quick to sign as the new tenant. Fifteen months later, the company is out on the street and being sued for unpaid rent.

The company's rapid fall serves as cautionary tale of the consequences a startup faces when it aggressively burns through their funding. But it also shows what can happen to a neighborhood when landlords chase the high rents paid by venture-fueled tech companies.

Million Fishes Art Collective sat at the corner of 23rd and Bryant for nearly a decade, reportedly paying over $13,000 a month in rent for a space deep within gang territory. The 10,000 square foot collective housed dozens of artists and was routinely open to the public for shows.

But soon the neighborhood became trendy among techies and the gang violence subsided. And in the fall of 2012, Million Fishes' landlord booted them from the space with the hopes of attracting a monied startup to the space.

It was around the time of Million Fishes' displacement that Bloodhound was in the middle of raising their Series A round. When the round closed in January 2013, it brought the company's total funding to $4.8 million. Flush with cash, Bloodhound responded to a Craigslist ad for the recently refurnished ground floor office at 2501 Bryant Street. They ultimately signed a five-year lease for $31,667 a month in rent (plus $564 in fees)—nearly two and a half times the amount the arts collective had been previously paying.

Criticism poured in. Million Fishes' warned of the "the fast-track erasure of a neighborhood we love" on the eve of their eviction. Many in the Mission agreed tech money was decimating the local artist community.

As one neighbor complained:

[What] was once a space where the public was invited in to see art and that provided housing for dozens of working artists contributing to SF's culture is now the exclusive domain of a bunch of tech bros, a dog, and usually a messy exhibit of party leavings and red solo cups in the windows. It's like the worst private cafe in the neighborhood.

Squandering nearly $400,000 a year in venture capital just to be in a hip neighborhood proved to be a terrible investment for Bloodhound. Despite TechCrunch's glowing coverage and claims that their growth strategy was "working like a charm," the app didn't pan out. In a blog post authored on Valentine's Day this year, the company announced it was killing off conference app and 'pivoting' to a business card-scanning program.

Now it seems the startup has burned through its cash. According to a lawsuit filed in the San Francisco Superior Court last month, Bloodhound has become a deadbeat—not paying their hefty rent since May.

When emailed for comment, Bloodhound co-founder Anthony Krumeich simply stated "We moved out of the office. No longer fit our needs." However court documents indicate Bloodhound has gone AWOL and abandoned their office. The landlord's attorney has not been able to issue the company or its founders a summons. Now court documents are prominently taped to Bloodhound's former front door.

How Quickly a "Genius" Startup Can Tank

Seeing the arts evicted for tech is hardly a new phenomenon in San Francisco. Galleries have been pushed out in droves across the city. Pinterest is forcing the eviction of dozens of design companies for a new office. It's rarely a case of flailing businesses finally succumbing to their inevitable death—it's often a story of sustainable small businesses being axed in favor of startups with speculative wealth. But the consequence of startups pushing up rents to unsustainable levels is that it ends up gutting the very culture that made these "hip" communities interesting in the first place.

The person who tipped us off to Bloodhound's demise further contextualizes the issue:

I have a commercial lease nearby and my landlord is using these kinds of [high-value] listings to determine "market rate." My lease ends soon and I won't be able to afford the 2x-3x increase. I don't think there is ANY kind of business other than the speculative/VC-fueled/monopoly money of tech that would/could pay that amount per square foot. I mean, a restaurant on [nearby Valencia Street] might pay that, and retail boutiques with heavy street traffic pay that (or more)… but, what other kinds of (conventional?) businesses could afford $3-4/sf in the midst of this mostly residential, working class, south-east corner of the Mission?

The office is back on Craigslist, with rents advertised around $37,500 per month. Our tipster writes:

I figure that the amount of time it takes the landlord to lease the space will be an interesting barometer for the tech climate… will there be another startup ready to pay so much for space?

Meanwhile, Bloodhound's about section continues to state that the company "makes its home in San Francisco's Mission District." A home Bloodhound helped price itself out of.

Update: An earlier version of this article incorrectly reported Million Fishes' original rent as $5,000 per month. One of the art collective's founders tells Valleywag it was $13,000.

To contact the author of this post, please email kevin@valleywag.com.