Lady Gaga’s Startup Backplane Crashes

Start-ups can surely learn a lesson or two from the Lady Gaga–backed and promoted start-up, Backplane. A Startup that let individuals make niche-based communities of “like-minded people to connect across their shared interests,” unfortunately is no more. TechCrunch reports that the social network builder startup has run out of money, gone out of business and has sold its assets to a group of previous and new investors who will try to restart it.

Lesson No 1: Know the dangers of fundraising at too high of valuations with exploitative terms in party rounds where no investor takes responsibility.

Lesson No 2: Lavish lifestyles drive up burn rates and bleed companies dry.

It all started in 2011 when Backplane was launched with investors like Lady Gaga, V.C. and Gaga manager Troy Carter, and institutional investors like Google Ventures, SV Angel, Sequoia, and Menlo Ventures, raising $12.1 million at a $40 million valuation. However, with this high valuation also, Backplane couldn’t get the attention it needed to sustain itself. When Carter and Gaga went their separate ways in 2013, Carter took with him the startup’s credibility too.

TechCrunch reported last year that Backplane was faltering, and pivoted to the less-catchy Place.xyz, creating apps for organizations like Burning Man and hiring a new C.E.O. Scott Harrison to execute the turnaround.

Ultimately, unseemly liquidation preferences and the company’s inability to get its burn rate under control seem to have led to Backplane’s downfall. The start-up defaulted on its loan obligations to lenders and failed to raise more money from their reluctant investors when its pot of venture-capital funding ran dry.

Still, this isn’t the end of the road for Backplane. “The system continues to operate and efforts are under way to continue business operation and release a number of new apps,” C.E.O. Scott Harrison told TechCrunch. “Partners like Gaga and others will become paying clients and not simply strategic partnerships.” The law firm that has helped sell Backplane says the investors who bought it will try “re-starting the concept” of the company.