The shattering of Mode Media’s $1 billion dreams signaled not just the dramatic downfall and ultimate failure of a once-hot digital publisher, but also the latest chapter in a very Silicon Valley tale that starts with questionable businesses, leads to bloated valuations and ends very badly.

The company, formerly known as Glam, fired its 300 or so employees without warning on Sept. 15, closed down its sites and, at least so far, has not paid many of its freelancers, who are owed thousands for supplying content for companies such as Target Corp.

This story first appeared in the September 28, 2016 issue of WWD. Subscribe Today.

Mode was focused on big audience numbers and at its peak garnered a $1 billion valuation, but the dollars didn’t make sense and it became the latest casualty of the feverish funding that has driven tech companies to not just mind-boggling heights but quick declines.

Fab.com was valued at $1 billion before being sold to PCH for $15 million. One King’s Lane, once tagged at about $900 million, was dumped in a similar fire sale to Bed, Bath & Beyond for an undisclosed sum that was described at “not material” by its new owner. Gilt Groupe, valued at $1 billion in 2011, went to Saks Fifth Avenue parent company Hudson’s Bay Co. for $250 million in January.

The once ultrahot Nasty Gal is said to be looking for its footing and searching for a buyer or a capital investment.

“Some of these businesses were initially overvalued by a very liquid venture capital market, but that is only a part of the issue. We’re seeing that what creates early momentum and growth in consumer technology businesses is likely not the same DNA or necessarily indicative of what can create long-term, lasting, sticky brands,” said Rebecca Kaden, a general partner at venture capital firm Maveron, which has invested in Zulily, Groupon and Everlane.

“Businesses that want to hit high valuations, maintain them and exit in that stratosphere have to not only show the ability to grow and gain momentum, but to keep consumers’ attention over a sustained period of time,” Kaden said. “This is a high bar and very difficult to do — we’re going to increasingly see that companies that can hit it will see lasting success and those that can’t will wind up exiting below the value they once were thought to hold.”

Warwick Business School’s John Colley said: “Mode Media is just another example of a Silicon Valley business that found it easier to raise money than to create value for shareholders. Mode Media, at its peak, managed $100 million of sales to create a $1 billion valuation, while profitability is not available for discussion.”

Colley, who researches large takeovers, said the trend isn’t limited to fashion or media firms; companies such as Tesla and Uber raise money for good ideas while failing to make a profit. Uber has raised almost $15 billion and is valued at $68 billion, but has yet to move into the black.

“Dividend payments are few and far between, while the shareholder structure and voting rights are designed to entrench the founder’s position and give them free reign to spend the cash,” he said. “Silicon Valley is awash with cash and it is all looking for the next big thing.”

Then there’s Yahoo’s very public struggle to pivot and reestablish itself as a digital content creator, only to ultimately cut a $4.8 billion deal with Verizon, which is now throwing its hat into the ring of candidates to become a modern media company. Yahoo can’t seem to catch a break, recently revealing it had been a victim of a state-sponsored hack in 2014 that comprised the data of 500 million users. Now, its deal with Verizon, and the time line of when it knew about the breach, is under scrutiny, with reports suggesting that it did not disclose the information to Verizon before cutting the deal.

“Investors have higher demands right now,” Colley said. “They want real returns versus promised, and while Mode had a great valuation, that isn’t enough anymore. The days of the big public offering reaping massive rewards for investors are coming to a close, which puts higher demands on companies to actually bring a return on their investment. When they can’t, they’re done.”

The idea of a “unicorn,” a term coined to coyly refer to billion-dollar start-ups, has come to represent controversy.

Mode raised at least $224 million during its 13-year tenure from investors such as Accel Partners and Tim Draper and at one time, it counted venture capitalist Marc Andreessen among its board members (Andreessen cofounded Netscape and is on the board of Facebook). All declined comment or did not respond to queries. Most entities associated with Mode and contacted by WWD aggressively distanced themselves from the situation, including investors, the office building’s property owner, the companies that commissioned Mode blogger content and shocked former employees, who seemed weary of being dragged down with the ship.

In a letter to its workers, Mode said it had been seeking financing for months, but kept it a secret because if it had notified employees, “we believed the potential financing sources and acquirers would be unwilling to provide any financing or engage in any transaction.” The cracks in the foundation were evident: Mode abandoned plans for an initial public offering in 2013. Chief executive officer and cofounder Samir Arora stepped down in April, followed by cofounder Dianna Mullins in August.

(The firm was most recently led by interim ceo Jack Rotolo.)

Mullins hinted at internal turmoil in a “farewell letter” to Mode on Medium in August: “After 12 years to the month, I find it is time to say goodbye. The newly assigned leadership has decided that they should continue to develop you without one of your mothers beside you,” she wrote, detailing the origin story in 2003, when “the valley” was in recovery from a burst tech bubble and Glam’s debut web site launched as an e-commerce destination at New York Fashion Week, before being named by Fast Co. in 2010 as one of the most innovative media companies.

Among the lessons Mullins learned were that “the executive team must be unified” and “ego must be put aside” and “the employees need to be shown the map, allowed to contribute and encouraged to help navigate how to get to the end goal.”

In almost 100 reviews on Glassdoor, former employees complain repeatedly of a top-heavy management structure that lacked direction — although the free food was a nice perk. One review from 2012 described a company culture of “wait for company-wide failure, then pretend to be the victim.”

Mode Media is working with Silicon Valley’s Sherwood Partners, which helps businesses in restructuring, liquidating and bankruptcy, but it is not yet clear if Mode will file for protection from its creditors.

Bankruptcy expert Jasmin Yang, an associate at law firm Snell & Wilmer, said Mode might opt for a less expensive out-of-court restructuring, such as an assignment for the benefit of credits, which allows the company to dodge financial scrutiny.

In that case, Yang said, the company would liquidate its assets and pay them out to unpaid vendors if there are sufficient funds — and if those vendors submit claims by a certain deadline. (Mode’s writers have complained that the company took down the portal used to keep records of work submitted.) The timing and amount of payment are ambiguous.

It’s not clear just how Mode burned through hundreds of millions of dollars or how its investors stood by the company for so long. German firm Hubert Burda Media, which has invested in BaubleBar and Etsy, put as much as $30 million into Mode as recently as 2015.

While the cash might be gone for good, Mode did leave behind unpaid bloggers who lie in its wake, left with nothing but a Facebook support group and a hashtag rallying cry, #ModeOwesBloggers.

The fundamental question, as has become standard for unicorns, is what exactly Mode’s model was — and how it was going to eventually become profitable.

Mode boasted that it combined human curation with algorithm technology that distributed the right content to the right people at the right time. But that confused even those who worked there — and is a cautionary tale for tech companies that moonlight as media outlets despite inexperience in journalism.

According to comScore, Google, Facebook and Yahoo were the three leading multiplatform properties in February. Google logged more than 243 million unique visitors during the month, while Facebook had 206 million and Yahoo claimed more than 200 million. Mode Media, at number 10, had 137 million unique users.

Shenan Reed, president of digital at media agency MEC North America, said Mode caved from increasing competition from these players on the top of the food chain.

“Mode was an ambitious company looking to grow and give media buyers access to a custom collection of fashion and beauty sites,” Reed said. “With the explosion of programmatic media buying, the consolidation of digital buys with big players like Facebook and Google has made for smaller potential allocations for media companies. As the industry faces the challenge of ‘fewer and bigger’ in digital media buys, we lose the opportunity to develop new platforms.”

Media industry experts agree this model presents an obvious challenge.

“The media space that Mode made such a splash in is saturated, and while they could pull a critical mass across a network of sites, the network lost money because the fundamental business model — free content for users based on advertising — doesn’t fund quality web content anymore,” said Jeff Inman, who is a professor at Drake University’s School of Journalism and Mass Communication. “You need that parent company that is willing to use content as a loss leader for a bigger objective to keep a lot of these start-up web publishers going when investors start demanding profits, rather than revenue.”

Mode freelance writer Dan Bergstein, who has been an editor at Stuff, Time Inc. and Maxim, called it “a clickbait site” that aimed to become a “Pinterest/Buzzfeed hybrid,” adding that it eventually became very slow at paying him. “I never had an understanding of the business model. At no time was it clear what Mode’s purpose was, aside from generating listicles. I have no clue who saw the stories or how they were circulated and curated.”

And this air of mystery might not be limited to Mode, or media.

“I would not be surprised if there are other unicorns or companies with seemingly high valuations that are racing the clock to cash out on an IPO to leave shareholders dealing with the fallout instead of the initial investors and VCs,” Yang said.