Aug 11, 2015 · 8 minutes

Yesterday’s announcement that virtual assistance startup, Zirtual, is closing its doors seemed to catch everyone by surprise: customers, staff, even investors.

As recently as Friday, founder Maren Kate Donovan was interviewed by investor Jason Calacanis for his “This Week In Startups” podcast. During that interview, Calacanis was still talking up the investment potential of Zirtual, and even chiding those investors who missed out on the unicorn in waiting…

Of the 150 investments I've made, you're definitely in the top 10% of tenaciousness... When I invested in you I knew that no matter what happens you were going to go down fighting with this business. If we have another 9/11 or there's a market crash, I just feel safe having you as an investment because I know you're going to grind it out and you're going to come through the other side… You have an $11 million run rate business now. It's just extraordinary. I think the investment community has probably missed this investment. I think they really should be more focused on it. I consider you like a sleeper. At some point the investment community is going to look at this like, well this could be similar to an Uber or Lyft…

Calacanis later said he “found out about issues [at Zirtual] on Saturday while out of the country…” and was “confused at a $11m a year business imploding.” That might be true -- more on that in a minute -- but Pando has learned that at least some investors had already been scrambling to help find new investors for Zirtual after the dire state of the company’s finances started to become apparent.

I say “started” because, according to sources familiar with the situation, Zirtual’s founders had allowed the company to become essentially insolvent while presenting a far healthier picture to investors.

Yesterday evening, things got even stranger. When I contacted Donovan for comment on the company’s demise, she responded with a, uh, bullish claim:

We are actually getting acquired - finalizing paperwork now. I can talk tomorrow.

It's partly true, we didn't realize how bad some of the financial stuff was until it was too late either because we had a horrendous external CFO firm for over a year & that was really where the trouble started - plus we were in the middle of a 3M note raise & at the last minute some investors dropped. The business was growing strong, 11M run rate - but cuz it's EE the overheard was huge.

I learned a ton, mostly hire a finance person you'd trust your life to EARLY on & a stellar ops person if you're gonna scale a human powered business to 450.

I'm happy to chat more - we'll be announcing the acquisition on Wednesday and plan to do all we can to win back clients & re-hire a fair amount of ZAs.

Sure enough, sources familiar with the deal have since told me that, having failed to secure additional investment, Zirtual investors began working to find a soft landing for the company. In the past few days a potential acquirer has been found and, at the time of writing, a deal seems likely.

That said, the picture those sources paint is very different from the rosy “all’s well that ends well” version given by Donovan: For one thing, any acquisition would be designed to help save jobs and salvage what’s left of the business rather than provide any meaningful return for the investors or founders. There are those inside and outside Zirtual who are frustrated that Zirtual is getting any kind of bail out, given how badly the company has been managed.

There is also some disagreement as to whether last minute investors really did “drop” from a $3m note raise or if they were never really committed in the first place.

It’s worth noting that, after Zirtual’s $2m seed round, led by Tony Hsieh and Vegas Tech Fund [Disclosure: a Pando investor], all of the money raised by the company has been debt financing, including the round in which Calacanis participated. According to CrunchBase, the company recently raised two debt financing rounds of $2.6m and $250k respectively, just over a month apart. Despite those injections of cash, sources tell me the company has struggled even to make payroll in recent months.

A cynic might wonder whether Calacanis’ invitation for Donovan to appear on his show late last week was a last ditch attempt by an investor to drum up some new backers. In other words, was it less an interview and more one of his famous native ads?

I think this business has unlimited upside, I really do... I really think you're sitting on a powder keg. I'm frustrated you haven't gotten this huge B round yet. You have money in the bank, like, whatever, but I think that we're set up for... like... what are we calling this? Is this a B? An A?  We have to get somebody who has a little bit of vision…

Uh huh.

[Update: After this piece was published, Calacanis tweeted the following comments: "There was obviously a failure of leadership on the board & management given the abrupt closing--researching it, as it's troubling... I was among smallest investors in & I'm fine with 8 of 10 of investments failing--that's the business I'm in! ...I don't have an audit of the business, nor do I think one will occur; investors take risks, business implode. part of the biz... they let everyone down, sure... but they were trying to save the business. and it appears to have a been a great business."

Asked by Pando if he knew the company was in financial trouble, Calacanis responded: "I did not know they were in financial trouble. I knew they were raising a round & not profitable, but that's common."]

Here’s what sources tell me is certainly the case:

Zirtual was beyond out of cash. The founders knew that, but had painted a far less dire picture for investors who knew the company was struggling, not that it was DOA. Some investors still don’t have a complete picture of the company’s situation.

An acquirer has been found for the company, but the deal has not yet been signed. The deal, if it closes, will be presented as a win for the company and its founders. In reality it’s anything but.

If the acquisition does close, at least some staff and Zirtual assistants will keep their jobs. Given the alleged financial mismanagement, the role of the Donovan and other senior Zirtual management in the new company is uncertain.

One footnote to the story that hasn’t been well reported is that this is yet another disastrous flame-out of a Vegas-based company whose primary investor was Tony Hsieh’s Vegas Tech Fund.

Zirtual’s point person at VTF was partner Andy White who left the fund in October of last year. I asked VTF partner Zach Ware if White’s departure contributed to Zirtual’s problems -- or at least if his departure caused a breakdown in contact that might otherwise have spotted the problems earlier. Ware told me White’s departure was “not remotely an issue.”

On the wider question of Zirtual’s failure, Ware told me:

It’s always sad to watch a fellow entrepreneur fail – Zirtual was a great idea and we are proud of our early investment in the vision. The company’s executive team was SF-based and while they had a small group in Las Vegas, we were many degrees removed from their day-to-day operations. Investing in startups is a risky business and like all investors, we won’t always be right.

Ware is also Pando’s contact at Vegas Tech Fund, and was the only person at VTF who reliably had NSFWCORP’s back, even as we were going out of business. For that I’ll always be inclined to cut him some slack. Also, in my own experience, Ware is not prone to the kind of bluster for which Hsieh and others working inside the Downtown Project are known.

Still, if Ware insists Zirtual was “many degrees removed” from Hsieh’s Downtown Project, that certainly doesn’t square with Hsieh’s own messaging, or the company’s. In June of this year, when I asked Hsieh to name some of the most successful Vegas-based companies in his portfolio he responded:  “Off the top of my head, OrderWithMe is doing well, as are Rolltech and Zirtual.”

A press release issued by the company back in March reiterated the company’s place at the heart of the Downtown Project:

Zirtual is headquartered in downtown Las Vegas, financed byTony Hsieh (CEO of, VegasTechFund (, and Mayfield Fund, and is now a part of the Downtown Project effort.  

Even though the demise of Zirtual seems to be squarely the fault of its management team, investors are never entirely off the hook in these situations, especially the lead investor.  No matter the reason for Zirtual’s demise, the fact remains that Hsieh’s Downtown Project continues to act out its own version of Agatha Christie’s “And Then There Were None.”

Three little startups in Tony’s Vegas zoo / Zirtual fudged its numbers / And then there were two...