11x Accusations: Claims of False Customers - a16z & Benchmark

11x: From Rapid Growth to Financial Concerns

In the previous year, 11x, a startup specializing in AI-powered sales automation, initially demonstrated remarkably rapid expansion.

However, investigations by TechCrunch, involving nearly two dozen sources including investors and employees – both current and former – reveal that the company has encountered significant financial difficulties, largely attributable to internal factors.

Potential Legal Action

Reports from individuals located in both the U.S. and the U.K. suggest the situation at 11x has become precarious, potentially leading Andreessen Horowitz, the company’s lead Series B investor, to contemplate legal proceedings.

Despite these claims, a representative from Andreessen Horowitz firmly denied any intention to pursue legal action, stating to TechCrunch that a16z is not currently suing.

The 11x Product and Market

11x provides an AI bot designed to automate outbound cold sales activities.

These functions include identifying potential clients, generating personalized messages, and arranging sales appointments.

The company operates within the burgeoning field of AI sales development representatives, often referred to as AI SDRs.

Early Success and Expansion

Established in 2022 by Hasan Sukkar, 11x reported reaching approximately $10 million in annualized recurring revenue (ARR) within its first two years of operation.

The company relocated its headquarters from London to Silicon Valley in July of last year.

In September, 11x announced a $24 million Series A funding round led by Benchmark, followed later that month by a $50 million Series B round spearheaded by Andreessen Horowitz.

Customer Retention Issues

According to three current and former 11x employees, a substantial number of its initial customers utilized “break clauses” within their contracts to terminate their subscriptions.

Sources indicate that customers experienced problems with the product, including malfunctions in the email delivery system and instances of AI hallucinations.

Internal Challenges

The work environment at 11x has been described by employees as demanding and stressful, even for those accustomed to a fast-paced work culture.

Notably, of the original employees featured in a launch photo published by TechCrunch, only the CEO, Hasan Sukkar, remains with the company.

Misleading Customer Endorsements at 11x

Similar to many emerging companies, 11x prominently displays customer logos on its website as a form of endorsement, typically obtained with the customer’s explicit approval.

However, investigations by TechCrunch have revealed that several companies whose logos appeared on 11x’s website were, in fact, not customers. At least one of these companies is now considering legal recourse as a result.

A representative from ZoomInfo stated to TechCrunch that they had not authorized the use of their logo and did not engage 11x’s services as a customer. The logo remained on the site until after March 6th, following an inquiry from a TechCrunch source. Even subsequently, the company’s AI-powered phone agent continued to assert the claim of a customer relationship.

ZoomInfo, a provider of sales intelligence and automation solutions, undertook a brief, one-month evaluation of 11x’s AI Sales Development Representative (SDR) from mid-January to mid-February. According to the spokesperson, the product’s performance was demonstrably inferior to that of their in-house SDR team, leading to the decision not to proceed further.

Despite this, “since November, 11x has consistently represented us as a customer across various platforms – during sales conversations, on their website, and now even through their AI dialer.” The spokesperson further stated that they have been actively requesting the removal of their logo and the cessation of false customer claims for the past four months.

Legal counsel for ZoomInfo has issued a warning of potential legal action, as evidenced in an email reviewed by TechCrunch, addressed to Sukkar. The lawyer outlined potential claims including deceptive trade practices, trademark violation, misappropriation of brand reputation, and false advertising.

The logo of Airtable was also displayed on the 11x website until recently. As of March 20th, Airtable was still listed as a “customer” on the company’s “manifesto” page. Airtable confirmed to TechCrunch that they are not a customer and never granted permission for logo usage.

Airtable also conducted a “short” trial of the product in late 2023, ultimately determining it was not suitable for their business needs, according to a spokesperson. “The product was never implemented in a production environment nor deployed to our sales teams.”

As late as March 21st, 11x continued to identify Airtable as a customer on its website. Another company, preferring to remain anonymous, shared a comparable experience with TechCrunch.

However, our investigation did confirm the legitimacy of some customer claims. Both Pleo and Rho have verified their use of 11x products.

11x maintains that it “swiftly removed any unwanted or inaccurate customer references from their site and products upon request” and that any instances where this did not occur were attributable to “human error” in a “limited number of cases.”

An Alternative Approach to ARR Calculation

Several former employees have indicated that they departed the company due to concerns regarding potentially misleading practices.

Specifically, it was reportedly insisted upon that prospective clients interested in pilot programs commit to a full one-year contract, as stated by a potential customer. This customer further noted a reluctance from 11x to allow for trials or experimentation.

Instead of traditional trials, 11x reportedly provided customers with an early termination clause, typically after three months, facilitating easy contract cancellation. This functioned effectively as a trial period, according to both former staff and the prospective client.

However, when calculating annual recurring revenue (ARR), the company allegedly did not distinguish between these trial periods and ongoing, long-term client relationships, sources claim. ARR was reportedly calculated based on the entire year's contract value.

11x maintains that it utilizes contracted ARR (CARR) for board reporting and asserts that its investors were fully informed of this methodology. The company states that investors conducted thorough due diligence, reviewing contracts, data files, and directly engaging with customers.

Even after clients exercised the break clause to terminate their trial – and subsequent payments – the company continued to include the full contract value in its ARR calculations, these individuals allege.

A 11x spokesperson clarified that the company does offer “free trials,” with the “majority of middle market customers” qualifying. However, they explained that some enterprise clients with “highly specialized” requirements “require a 12-month contract with an opt-out after 3 months.”

The rate of customer churn – the percentage of companies not renewing long-term – was reportedly substantial. “We were losing 70-80% of customers that came through the door,” one employee revealed. This practice allegedly allowed 11x to “present a more favorable financial picture than was accurate,” the source added.

For instance, the company may have reported $14 million in ARR, while the actual value of contracts extending beyond the initial three-month trial period was closer to $3 million, according to this employee.

“There was a clear pattern of internal manipulation of figures related to growth and churn,” another former employee stated.

11x acknowledges that its “highest churn” occurred with “initial cohorts in late 2023,” but contends that product improvements and a more focused sales strategy targeting its “ideal customer” have led to increased retention. The company currently reports a “retention rate of 79%.”

Venture capitalists suggest the issue wasn’t necessarily the use of CARR, but rather the expectation that startups will transparently disclose potential revenue impacted by opt-out clauses – and customer churn rates.

Benchmark reports receiving transparent updates from 11x, including details regarding the break clauses, as confirmed by a spokesperson to TechCrunch.

Product Performance Concerns

Feedback from multiple sources indicates a pattern of dissatisfaction with the product, leading to a high rate of trial cancellations. At least one current employee and four former employees have reported that numerous companies opted not to continue service after their initial trial period.

A contributing factor to this churn appears to be misaligned expectations. Some customers anticipated that 11x could fully substitute an existing outbound sales team, resulting in substantial cost savings – potentially hundreds of thousands of dollars annually, as stated by a former employee.

Despite these expectations, internal beliefs suggested such outcomes were improbable. Sales representatives at 11x reportedly conveyed to potential clients that the technology would significantly increase booked meetings, demos, and calls within a few months.

However, the actual results often fell short of these projections. One company that tested the product noted that the ratio of automated emails to successfully booked meetings was underwhelming.

11x maintains that its product surpasses the performance of human Sales Development Representatives (SDRs). The company clarifies that ultimate success is contingent upon the quality of the data provided by the user.

Furthermore, 11x states that its sales presentations do not include guaranteed savings or revenue increases. Other users reported issues with the product’s functionality, including instances of inaccurate information generation and loading failures, according to a former employee.

An anonymous review published on Medium criticized the product's effectiveness and cost-efficiency compared to competitors. 11x attributes such negative reviews to competitive sabotage, a common occurrence within the AI SDR market.

“The products barely function as advertised,” a former engineer revealed to TechCrunch. This necessitated manual review and correction of the automated output, effectively negating the intended benefits of utilizing 11x, another employee added.

Billing discrepancies were also reported. One customer experienced duplicate charges for their three-month trial. The customer expressed suspicion regarding these errors, suggesting a potential attempt to overcharge.

During due diligence for a potential Series A investment, a venture capital firm discovered limitations in the technology’s performance. Existing 11x customers informed the investor that initial satisfaction diminished after one month, as the AI proved incapable of generating viable leads.

In response to this feedback, a current employee asserted the need for customers to fully adapt to the 11x system. The company is actively exploring strategies to improve customer retention rates.

• Key Issue: Unrealistic customer expectations regarding automation capabilities.
• Technical Problems: Reports of inaccurate data ("hallucinations") and system loading issues.
• Billing Concerns: Instances of duplicate billing and perceived attempts to overcharge.

Investor Concerns

The VC firm’s experience highlights a critical issue: the initial promise of the technology did not translate into sustained lead generation after a period of use.

Employee Turnover at 11x

A challenging work atmosphere, characterized by significant employee churn, was reportedly prevalent under the leadership of founder-CEO Sukkar.

Based on accounts from employees and reviewed communications, expectations generally involved working a minimum of 60 hours weekly, coupled with consistent demands for immediate availability.

Records of Slack conversations reveal instances of Sukkar inquiring about employee whereabouts at 8 p.m., despite a previously established 9 a.m. workday start time.

One current employee stated that taking vacation time was discouraged. A former employee corroborated this, noting that weekend and holiday work were also expected.

A former staff member recalled Sukkar sending urgent messages via Slack, sometimes as late as 3 a.m., demanding immediate resolution of issues. This fostered an “always-on” culture, leading some individuals to sleep at the office.

When employees were unavailable or issues arose, Sukkar allegedly voiced his dissatisfaction with the individual in question publicly within the general Slack channel, as recalled by multiple employees.

Two employees indicated that voicing concerns carried the risk of threats related to their employment.

“There are many more issues that remain hidden,” a current employee commented, suggesting Sukkar’s actions warrant further scrutiny. They believe his conduct is so noteworthy it could be the subject of a documentary.

11x experienced staff departures during its relocation from London to San Francisco last July, as employees unable to move chose to leave. The company reports its current headcount has doubled to 50 full-time employees.

At least one former employee is still awaiting outstanding wages several months after their departure.

Concerns regarding delayed payment after resignation have become ingrained in the company culture, leading current employees to postpone submitting their resignations until after their next payday.

“Payday was today,” a current employee shared. “I anticipate several resignations will occur over the weekend or on Monday.”

Update

This report has been updated to include commentary from Benchmark and 11x’s response to a product review published on Medium.