When an investment doesn't work out, the first attempt to salvage the deal is typically to look for a buyer. When that doesn't pan out, the next move is often to look for a company to merge with. Usually its another venture backed company. And many times both companies are struggling.
I have learned to resist the urge to merge two poorly performing companies because as Bliss used to say, "two lemons won't make lemonade".
It's easy to convince yourself to merge two poorly performing investments. You might have a good team in one company. You might have some great technology in another. The combined investor group might be able to support the merged company through a new business plan. It's seductive reasoning. But its flawed.
The first thing I've learned is that merger of equals, whether they are really small companies or really big companies are incredibly hard to pull off. You really need a buyer and a seller to make a work. Someone needs to be in charge and in mergers of equals, its not often clear who that is.
The second thing I've learned is that two products/services that are struggling are at least twice as hard to get working as one product/service that is struggling. Combining forces actually makes it harder to get the company moving in the right direction because you have more problem children to deal with.
When you have an investment that isn't working, its critical to do something about it and not just put more money into it and hope for the best. I think getting the company sold is a great solution. If that doesn't work, it might be best to simply shut the company down because the idea of merging with another struggling startup is generally a really bad idea.
Because two lemons won't make lemonade.