Last year, AI-powered sales automation startup 11x appeared to be on an explosive growth trajectory.
But nearly 20 sources, including investors and current and former employees, told TechCrunch that they are primarily experiencing their own financial struggles.
Many people in the US and the UK told TechCrunch that this situation has become so tenuous that Andreessen Horowitz, the 11X lead series B investor, may be considering legal action. However, a spokesman for Andreessen Horowitz highlighted such a rumble and told TechCrunch that the A16Z was not suing.
11x provides AI bots for outbound cold sales obligations, including identifying prospects, creating custom messages, scheduling sales calls, and more. This is one of the many AI startups in the hot area known as AI sales developers or AI SDRS.
Founded in 2022 by Hasan Sukkar, 11X said it had approached $10 million in annual recurring revenue (ARR) just two years after its launch. It moved from London to Silicon Valley last July and announced its $24 million Series A, led by the benchmark in September. TechCrunch defeated the news of the $50 million Series B, led by Andreessen Horowitz later that month.
The current three and former 11 times workers told TechCrunch that most of their early customers used “break clauses” in their sales agreements to discontinue using the product. According to sources, customers are facing issues such as email products and hallucinations that are not working as expected.
There were also some internal dramas. Employees described the painstaking and stressful work environment, even those embracing hustle culture. They pointed out that of the early employees in the photographs published by TechCrunch at the time of the company’s launch, only CEO Sukkar remains.
Fake Customer Approval
Like many startups, 11X proudly presents a customer’s logo on a website that shows customer approval, usually shown with customer consent.
However, TechCrunch has learned that multiple companies with logos on their 11X websites are not real customers, and at least one threatens legal action.
“We didn’t give them permission to use the logo in any way, but we’re not customers,” a Zoominfo spokesperson told TechCrunch. The logo was not removed until March 6th, when a source close to TechCrunch asked about it. However, even after that date, the company’s telephone AI agents continued to repeat the customer’s claims.
Zoominfo, which provides sales data and automation tools, conducted a short, one-month trial of AI SDR from mid-January to mid-February, the spokesman said. “During the pilot, the 11X product was significantly worse than SDR employees and did not move forward after that.”
Still, “Since November, 11X has insisted us as a customer of many channels, including sales calls, websites and now even AI dialers. For the past four months, we have stopped displaying our logos and requested that we incorrectly count them as customers,” the spokesman said.
According to an email seen by TechCrunch from Zoominfo’s lawyer to Sukkar, Zoominfo’s lawyers are currently threatening legal action. The lawyer wrote that he was looking at “several causes of legal action, including, but not limited to, deceptive trade practices, trademark infringement, misappropriation of goodwill, and false advertising.”
Similarly, the AirTable logo was featured on the 11X website up until a few weeks ago, and as of March 20th, the 11X website still nominated Airtable as a “customer” on the company’s “manifesto” page. AirTable told TechCrunch it was not a customer and never gave 11x permission to use the logo.
AirTable also conducted a “very short” test of its products late last year, and “finally decided it wasn’t suitable for our business,” an AirTable spokesperson told TechCrunch. “It was never used for production and never deployed to the sales team.”
Still, even as of March 21, 11X still claimed Airtable as a customer on its website. And another company that asked not to name it told TechCrunch a similar story.
Our research showed that some clients’ claims were legal. For example, Pleo and Rho have confirmed that they are using 11x products.
11x claims that “we expeditedly removed any unwanted or inaccurate customer mentions when requested.”
Creative ways to calculate arr
Meanwhile, at least three employees said they left the company because it was perceived as a suspicious tactic in the company.
For example, 11 times is “adamant,” and prospects said they sign a one-year contract if they want to implement a pilot program. “They were resistant to signing and having them experiment with all sorts of exams,” the prospect continued.
Instead, 11x provided customers with break clauses, usually in three months, making it easier for customers to break contracts. This essentially served as a court period, these former employees and potential customers said.
However, when reporting annual repeat revenue (ARR), the company did not distinguish between court periods and long-term clients, the former and current employees said. The company calculates the ARR based on the year-round.
11x said it would “use a contract ARR (CARR)” when reporting to the board, and that the investor was aware that he was using that metric. 11x says the investor reviewed the customer contract, customer data file and spoke to the customer during due diligence.
These people said, whether prospects ended trials using the break clause and after payments were completed, the companies continued to count ARRs as if these companies had completed their full-year contracts.
A spokesperson for 11X said the startup offers a “free trial” and “most of the middle market customers” provide the qualifications, while some business customers with “highly specialized” customized needs “need to have a 12-month agreement with opt-out in three months.”
Several employees said the churn rate – the number of companies that were not continuing in the long term was high. “We lost 70-80% of our customers who went through the door,” one employee said. That allowed 11x to “seems to be better than that,” the person continued.
For example, the company might say its annual recurring revenue was $14 million when, in fact, the number of contracts exceeded the three-month trial totaled only about $3 million.
“When it comes to growth and churn, they massaged numbers internally,” another former employee said.
According to 11x, “best churn” occurred in the “late 2023 early cohort”, but it said that product improvements and sales to “ideal customers” improved retention. 11X says, “The retention rate is currently 79%.”
According to venture capitalists, it wasn’t an issue that 11X was using Carr to use Carr, but investors expect the startup to disclose potential opt-out revenues and customer terminations.
The benchmark is offering a transparent update from 11X, including break clauses, a spokesman told TechCrunch.
The overwhelming product
According to at least one current employee and four former employees, many companies cancelled after trial because they were not satisfied with the product.
Some churn is because customers had unrealistic expectations, and 11 times are hoping to trade the entire outbound sales team and save hundreds of thousands of dollars a year, one former employee said.
The person said 11x salespeople often told prospects within months that, despite employees believing this to be unrealistic, they could see a significant increase in the number of meetings, demonstrations and calls booked for startup technology.
“The amount of automated emails and the actual outcomes of booked meetings were disappointing,” said one company that tried the product.
11x believes the product is superior to human SDR, but says that “performance ultimately depends on the quality of user input.” It also states that it does not guarantee sales savings or revenue.
Other customers complained that 11 times the product was hallucinated or that the product didn’t load at all, the former employee continued. One reviewer from Medium panned the product and said that it was far less effective, but would cost more than its competitors.
“The product almost does not work,” the former engineer told TechCrunch. Instead, customers need to manually check and correct their work, and then beat the purpose of purchasing 11x products in the first place, another employee said.
Additionally, the company may have billing issues. One customer was billed twice during a three-month probationary period. “It looked like they were going past us and trying to get something,” the customer said.
One VC considering investing in Series A has discovered that the technology does not work well during the due diligence process. An existing 11x client said that while initially satisfied with investors, the startup’s AI couldn’t generate effective leads after a month of use.
He spoke about the investor’s experience, saying that current employees defend the company and that it takes time for customers to adapt to the 11x structure. The person said the company is trying to find ways to encourage more customers to stay longer.
Employee churn
Employees also explained the rough work environment under founder CEO Sukkar, where many employees cancel.
According to employees and messages seen by TechCrunch, employees were generally expected to have been under intense pressure to ensure that working at least 60 hours a week is always available.
The slack message shows Skukuru asking where everyone was at 8pm after previously telling employees that it started at 9am
“He doesn’t believe people take leave,” the current employee said. Another former employee said he is expected to work on weekends and on national holidays.
“There are probably three Slack founders, which sends a message saying, “This needs to be resolved urgently.”
If the employee was not immediately reachable, or something was wrong, Sukkul was known to post his frustration about the general worker that everyone could see, at least two employees recalled.
According to two employees, the employee who spoke out was at risk of being threatened by fire.
“There’s a lot more under the hood,” the current employee said, referring to Sukuru. “One day there’s a documentary about this guy, and I believe that’s how scandalous he is.”
11X says it moved from London to San Francisco last July, and as employees who were unable to move decided to leave the company after falling, they decided to leave the company. That period means that it has doubled the number of people as it now includes 50 full-time employees.
At least one former employee we spoke to said they would still be waiting months after they left.
Concerns about Backpay after quitting have become part of a culture where current employees say they are the most waiting for the nearest payday to pass before they quit.
“We just paid today,” the current employee said. “I hope that a few people will resign on the weekend or Monday.”
Note: This story has been updated to include comments from the benchmarks.
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