Last year, AI-powered sales automation startup 11x appeared to be on an explosive growth trajectory.
However, nearly two dozen sources — including investors and current and former employees — told TechCrunch that the company has experienced financial struggles, largely of its own making.
Numerous people in the U.S. and U.K. told TechCrunch that the situation has become so tenuous that 11x’s lead Series B investor, Andreessen Horowitz, may even be considering legal action. However, a spokesperson for Andreessen Horowitz emphatically denied such rumblings, telling TechCrunch that a16z is not suing.
11x offers an AI bot for outbound cold sales duties, including identifying prospects, crafting custom messages, and scheduling sales calls. It’s one of a number of AI startups in the hot area known as AI sales development representatives, or AI SDRs.
Founded in 2022 by Hasan Sukkar, 11x said it approached $10 million in annualized recurring revenue (ARR) just two years after launch. It moved from London to Silicon Valley last July and announced a $24 million Series A led by Benchmark in September. TechCrunch broke the news of a $50 million Series B led by Andreessen Horowitz later that month.
Three current and former 11x workers told TechCrunch that most of its early customers took advantage of “break clauses” in their sales contracts to discontinue using the product. Customers faced issues such as the emailing product not working as expected or hallucinations, according to sources.
There was some internal drama, too. Employees described an arduous, stressful work environment — even for those who embrace hustle culture. They pointed out that out of the early employees in the photo published by TechCrunch at the company’s launch, only Sukkar, the CEO, remains.
Fake customer endorsements
Like many startups, 11x proudly showcases customer logos on its website that signify customer endorsements and are typically shown with a customer’s consent.
However, TechCrunch learned that multiple companies with logos on 11x’s website were not actual customers and that at least one is threatening legal action over it.
“We did not give them permission to use our logo in any manner, and we are not a customer,” a ZoomInfo spokesperson told TechCrunch. The logo wasn’t removed until after March 6, when a source close to TechCrunch inquired about it. But even after that date, the company’s phone AI agent continued to repeat the customer claim.
ZoomInfo, which offers sales data and automation tools, conducted a short, one-month trial of the AI SDR from mid-January through mid-February, the spokesperson said. “During the pilot, 11x’s product performed significantly worse than our SDR employees, and we did not move forward afterward.”
And yet “since November, 11x has been claiming us as a customer in a multitude of channels: in sales calls, on its website, and now even on its AI dialer. We’ve spent the past four months demanding that they stop displaying our logo and falsely counting us as a customer,” the spokesperson said.
ZoomInfo’s lawyer is now threatening legal action, according to an email seen by TechCrunch from ZoomInfo’s lawyer to Sukkar. The lawyer wrote that he sees “several legal causes of action including but not limited to deceptive trade practices, trademark infringement, misappropriation of goodwill, and false advertising.”
Likewise, Airtable’s logo was featured on the 11x website until a few weeks ago and, as of March 20, 11x’s website still named Airtable as a “customer” on the company’s “manifesto” page. Airtable told TechCrunch it wasn’t a customer and never gave 11x permission to use its logo.
Airtable also conducted a “very short” trial of the product late last year, “and ultimately decided that it wasn’t a fit for our business,” an Airtable spokesperson told TechCrunch. “It was never used in production and never rolled out to our sales team.”
And yet even as of March 21, 11x was still claiming Airtable as a customer on its website. And another company, which asked not to be named, told TechCrunch a similar story.
Our research did show, however, some customer claims were legit. Pleo and Rho, for example, confirmed that they are using 11x products.
11x insists it “promptly removed any undesired or inaccurate customer mentions on their site and within their products when requested” and in the “small number of cases” when it didn’t, that was “due to human error.”
A creative way to calculate ARR
Meanwhile, at least three employees said they left the company because of what they perceived as shady tactics at the company.
For example, 11x was “adamant” that prospects wishing to conduct pilot programs sign a one-year contract, a prospective customer said. “They were resistant to signing any sort of trial or letting us experiment,” this prospective customer continued.
Instead, 11x offered customers a break clause, typically at three months, that made it easy for customers to break the contract. This worked essentially as a trial period, these former employees and potential customer said.
But when reporting annual recurring revenue (ARR), the company didn’t differentiate between trial periods and long-term customers, former and current employees said. The company would calculate ARR based on the full year.
11x says that it “uses contracted ARR (CARR)” when reporting to the board and that its investors were aware it used that metric. 11x says investors reviewed customer contracts, customer data files and spoke to customers during their due diligence.
Even after prospects used the break clause to end their trial — and their payments — the company continued to count ARR as if these companies were completing the full-year contract, these people said.
The 11x spokesperson says the startup does offer “free trials” and the “majority of middle market customers” qualify for that, but says that some enterprise customers with “highly specialized” and customized needs “require a 12-month contract with an opt-out after 3 months.”
The churn rate — the number of companies not continuing long-term — was high, multiple employees said. “We were losing 70-80% of customers that came through the door,” one employee said. That allowed 11x to “look like it’s doing better than it is,” the person continued.
For example, the company might say it had $14 million in annual recurring revenue when in reality, the number of contracts that passed the three-month trial period totaled only about $3 million, the employee said.
“They absolutely massaged the numbers internally when it came to growth and churn,” another former employee said.
11x says that its “highest churn” occurred for “initial cohorts in late 2023” but improvements in the product and refining sales to its “ideal customer” have improved retention. 11x says its “retention rate is currently 79%.”
The problem wasn’t necessarily that 11x was using CARR to showcase its growth, venture capitalists say, but that investors expect startups to disclose potential opt-out revenue — and customer churn.
Benchmark says it has been provided transparent updates from 11x, including the break clauses, a spokesperson tells TechCrunch.
Product underwhelms
Many companies canceled after their trial because they were not happy with the product, according to at least one current and four former employees.
Some churn was because customers had unrealistic expectations, hoping that 11x could replace an entire outbound sales team, saving hundreds of thousands of dollars a year, one former employee said.
This person said that 11x salespeople often told prospects that within several months, they could expect to see a sizable uptick in the number of meetings, demos, and phone calls booked because of the startup’s technology — despite the employees believing this to be unrealistic.
“The actual results of the amount of automated emails versus meetings booked was disappointing,” said one company that tried the product.
11x says it believes its product outperforms human SDRs but says “performance ultimately relies on the quality of user input.” It also says it does not guarantee savings or revenues in its sales pitches.
Other customers complained that the 11x product was hallucinating or that the product wouldn’t load at all, this former employee continued. One reviewer on Medium panned the product, saying it was far less effective and yet cost more than its competitors.
“The products barely work,” a former engineer told TechCrunch. Instead, customers would have to manually check and correct the work, defeating the purpose of buying 11x’s product in the first place, another employee said.
Additionally, the company sometimes had billing issues. One customer was billed twice for their three-month trial period. “It almost seemed like they were kind of trying to get something past us,” the customer said.
One VC considering investing in the Series A discovered that the tech didn’t work well during the due diligence process. 11x’s existing customers told the investor that they were initially satisfied but that after a month of usage, the startup’s AI failed to generate effective leads.
Told about this investor’s experience, a current employee defended the company, saying that customers need time to adapt to how 11x works. This person said the company is also trying to find ways to encourage more customers to stay longer.
Employee churn
Employees also described a rough work environment with a lot of employee churn under founder-CEO Sukkar.
Employees were generally expected to work at least 60 hours a week with heavy pressure to be constantly available, according to employees and messages seen by TechCrunch.
Slack messages show Sukkar asking where everyone was at 8 p.m., after previously telling employees that the workday started at 9 a.m.
“He doesn’t believe in people taking holidays,” a current employee said. Another former employee said they were also expected to work over the weekend and on national holidays.
“You would have the founder on Slack, maybe three in the morning, sending messages saying ‘this needs to be resolved urgently,’” a former employee recalled, adding that the always-on mentality was so pervasive that some employees simply slept in the office.
When employees couldn’t be reached immediately — or if something was amiss — Sukkar was known to post his frustrations about said worker in the general Slack channel for everyone to see, at least two employees recalled.
Employees who spoke out risked being threatened with dismissal, according to two employees.
“There’s a lot more under the hood,” a current employee said, referring to Sukkar. “One day, there will be a documentary about this guy. I do believe that’s how scandalous he is.”
11x says it experienced turnover as it relocated from London to San Fransisco last July as employees who couldn’t relocate decided to leave the company. It says its headcount has doubled in that time period to now include 50 full-time employees
At least one former employee we spoke to said they are still awaiting back pay months after having departed.
The concern over backpay after quitting has become such a part of the culture that a current employee said most wait for the nearest payday to pass before quitting.
“We’ve just got paid today,” a current employee said. “I’m expecting a couple of people to resign over the weekend or on Monday.”
Note: This story has been updated to include a comment from Benchmark.
