This Is What It Looks Like When You Lose All of Your Startup Money
Well, technically not all of it. After working as a programmer for online gaming community Meez.com, our tipster saw his scoop of the corporate money sundae reduced by 8,000,000 to 1, leaving him with just a little more than it cost to mail him this check. "Sometimes you win," he told us, "but you rarely hear about the losers."
Meez was never a terrific idea, nor a particularly original one—users were encouraged to customize a cartoonish 3D avatar and purchase virtual good with "coinz"—in turn purchased by dollars. Sound familiar?
It might've been cutesy and derivative, but according to the company, it was also profitable—a rarity even for the best ideas. Meez was greeted by write-ups in the San Francisco Chronicle, Forbes, and Time—although the latter named it one of the "five worst websites" of 2007. From that point on, it was clear a pixellated tween dollhouse wasn't going to be a longterm moneymaker, and the site's brief popularity diminished. So did its bank accounts.
Meez found itself $16 million in the hole with no way of paying it off, so it pulled one of modern finance's most dazzling sleights of hand: it recapitalized, diluted everyone's stock in the company, and cashed them right out.
By 8,000,000 to 1—meaning a check for $0.56.
This left our friend at Meez, who not only had his own stake in the company, but had spent thousands to enlarge it, with less than a dollar. I asked Meez CEO John Cahill what this stake might've been worth before the insane dilution, but he answered only that it'd be "very hard to put a number on it"
What does one do here, left without enough money to eat dollar nuggets at McDonalds? Nothing—because it was never real money to begin with, remember? Our tipster just realized that too late:
"People all too often don't hear about the harsh reality that sometimes happens. You bust your ass for years and inflict a self brainwashing mentality that your product kicks ass, only to find out that it a series of mistakes were made that end up forcing a company into the situation that we see here."
Paper wealth can just as easily become paper poverty.
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