Posted:January 22, 2010

Brown Bag Lunch: “Stealth Mode”? Grab Your Wallet

Friday Brown Bag LunchI just came across a VC blog pondering the value to a start-up of operating in “Stealth Mode” or not.  I’ve amusingly come to the conclusion that all of this — particularly the “stealth” giveaway — is so much marketing hype.  When a start-up claims they’re coming out of stealth mode, grab your wallet.

The most interesting and telling example I have of this is Rearden Commerce, which was announced in a breathy cover story in InfoWorld in February 2005 about the company and its founder/CEO Patrick Grady.  The company has an obvious “in” with the magazine; in 2001 InfoWorld also carried a similar piece on the predecessor company to Rearden, Talaris Corporaton.

According to a recent Business Week article, Rearden Commerce and its predecessors reaching back to an earlier company called Gazoo founded in 1999 have raised $67 million in venture capital.  While it is laudable the founder has reportedly put his own money into the venture, this venture through its massive funding and high-water mark of 80 employees or so hardly qualifies as “stealth.”

As early as 2001 with the same technology and business model, this same firm was pushing the “stealth” moniker. According to an October 2001 press release:

“The company, under its stealth name Gazoo, was selected by Red Herring magazine as one of its ‘Ten to Watch’ in 2001.”  [emphasis added]

Even today, though no longer using the active name Talaris Corporation, it has close to 115,000 citations on Yahoo! Notable VCs such as Charter Ventures, Foundation Capital, JAFCo and Empire Capital have backed it through its multiple incubations.

Holmes Report, a marketing company, provides some insight into how the earlier Talaris was spun in 2001:

“The goal of the Talaris launch was to gain mindshare among key business and IT trade press and position Talaris as a ‘different kind of start-up’ with a multi-tiered business model, seasoned executive team and tested product offering.”

[Hmmm; grind me a pound!]

The Holmes Report documents the analyst firms and leading journals and newspapers to which it made outreach.  Actually, this outreach is pretty impressive.  Good companies do the same all of the time and that is to be lauded.  What is to be questioned, however, is how many “stealths” a cat can have.  Methinks this one is one too many.

“Stealth” thus appears to be code for an existing company of some duration that has had disappointing traction and now has new financing, a new name, new positioning, or all of the above.  So, interested in a start-up that just came out of stealth mode?  Let me humbly suggest standard due diligence.

Friday Brown Bag Lunch This Friday brown bag leftover was first placed into the AI3 refrigerator on October 13, 2005. No changes have been made to the original posting, except the [grinding] bit.

However, as of last year, Rearden had upped its VC funding to $240 million (can we spell multiple ?). Today, it is now focused on the travel industry. Fly me to the moon!

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Brown Bag Lunch: “Stealth Mode”? Grab Your Wallet

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I just came across a VC blog pondering the value to a start-up of operating in “Stealth Mode” or not.  I’ve amusingly come to the conclusion that all of this — particularly the “stealth” giveaway — is so much marketing hype.  When a start-up claims they’re coming out of stealth mode, grab your wallet. The […]

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