In the past few years, there have been many stories of companies going from success to failure. Several once-successful firms are now struggling to stay alive or have already filed for bankruptcy. One of these is Cameo, a video-commissioning app that reached unicorn status in 2021 but now lacks the money to pay a $600,000 fine. Here’s the story of how the app, which allows users to request personalized videos from celebrities, went from thriving to failing, starting with its court case.

Cameo is best known for its core product wherein users can connect with their favorite stars and request them for a personalized video message. However, the company has branched out to other products also. These include Cameo Business, launched in 2020, where celebrities can also endorse a product or service.

Cameo Was Fined $600,000 for Not Disclosing Paid Endorsements Properly

However, the videos on the platform came without adequate disclosures that these were paid endorsements and Cameo was found to be in violation of consumer protection laws. A bipartisan consortium of 30 state attorney generals fined Cameo $600,000 for not adequately disclosing paid endorsements.

New York Attorney General Letitia James said, “Videos that are properly labeled as paid ads help consumers make conscious decisions about what to buy, and Cameo was not doing enough to protect viewers. Today’s settlement will ensure that Cameo steps up to make sure videos are properly labeled and consumers are not misled.”

While the fine might otherwise not have made such a fuss, Cameo submitted its financial documents during the settlement to show that it wasn’t in a position to pay the money. It was let off with a fine of only $100,000 but would have to pay the remaining amount also if it was found violating the rules again.

Meanwhile, according to Jennifer Arlen, director of a program on corporate compliance and enforcement at NYU Law, if Cameo is forced to pay the remaining amount, it “would presumably send the company into bankruptcy.”

In essence, Cameo – which was valued at $1 billion in 2021 – is now on the cusp of bankruptcy. Here’s what went wrong with the app that boasts of a 4.9 rating on the Apple App Store and 4.8 on the Google Play Store.

Cameo Became a Unicorn in 2021

In 2021, Cameo raised $100 million in its Series C funding which valued the company at a whopping $1 billion in a round led by Jonathan Turner, a partner of e.ventures. Amazon’s Alexa Fund and UTA Ventures also invested in that round. The company also counts pristine names like Google Ventures, SoftBank, and Tony Hawk as its investors.

“Cameo is creating a new category and fundamentally changing the relationship between talent and fans. We are at an early stage, but the opportunity is massive,” said Turner back then.

Notably, Cameo said that it would use those funds for its Cameo4Business segment which is now at the center of controversy over not disclosing endorsements. The company was also looking to expand its workforce and grow internationally with that investment.

Global Macro Environment Changed in 2022

Meanwhile, the global macro-economic environment changed in 2022, in part due to relentless rate hikes by central banks – including the US Federal Reserve which raised its benchmark rates to a two-decade high.

It turned out that much of the growth that Cameo saw between 2020 and 2021 wasn’t sustainable. Amid falling growth, the company resorted to mass layoffs and had fewer than 50 employees in 2023. But Cameo isn’t the only tech company that failed to sustain its incredible growth during the COVID-19 pandemic.

Zoom Video Communications, Peloton, Chegg, and Teladoc Health are all struggling with sagging growth. Even the growth of tech giants like Amazon and Alphabet also plummeted in 2022 after peaking in 2020-2021.

Cameo, in particular, failed to convert the euphoria into sustainable growth. According to Laura Schaffer, the VP of Growth at Amplitude, “This is a temporary giant boost in brand awareness and getting people in the door. Then, how do we have a very deliberate pivot strategy for when those accelerants go away? And I think companies like Cameo that kind of pitched or assumed that that was going to stay the same ended up in big trouble.”

You can listen to her full podcast above.

The funding winter only made Cameo’s problems worse as it raised $28 million in Series D funding at a valuation of a mere $100 million, a 90% discount to its previous valuations. While these “cramdown” rounds are not uncommon as the macro environment has changed dramatically for some companies, Cameo’s finances now look quite precarious.

What Lessons Could Other Startups Draw from Cameo?

The downfall of Cameo and many other similar companies have some valuable lessons for other startups. Firstly, companies should be careful about extrapolating high growth and instead take a pragmatic approach to expanding the business. While established companies can still pivot their business to a low-growth environment, the steering can be troublesome for startup companies.

Secondly, having some cash for the proverbial “rainy day” does not hurt and might not only save startups the agony of going through down funding rounds but can also help avert bankruptcies.

It might also be prudent for startups not to overspend after big funding rounds and instead take a somewhat conservative approach with cash.