The real losers in the story of MoviePass were retail investors, not venture capitalists

Hollis Johnson / Business Insider

• MoviePass, the struggling movie ticket subscription service, was closed on weekends after burning hundreds of millions of dollars.
• The service had become a joke in the industry for its unsustainable business model.
• Contrary to popular media talk, venture capitalists are not the ones who lost money with the fall of the startup.
• MoviePass' parent company, Helios and Matheson Analytics, has flooded the public markets with millions of new shares to cover huge losses in service.
• Most of the losers were unsophisticated retail investors, some of whom had already told Business Insider to trust the MoviePass product.
• A retired investor, Ken, said he had lost about $ 190,000.
• Visit the Business Insider home page for more stories.

MoviePass finally died over the weekend, but the movie ticket subscription service had become a starting line long before that.

Peter Kafka from Recode best sums up the general feeling in a tweet on Friday: "Sometimes the model" lose money with every transaction, try to catch up with the volume "does not work."

It's easy to understand why paying $ 10 a month and letting a subscriber see up to 30 movies in movie theaters a month has not worked, especially when MoviePass was paying those tickets at a hefty price.

But what is less well understood is who are the real losers in the MoviePass story.

The cover of MoviePass tends to treat his disappearance as an absence of sympathetic victim. This attitude is well illustrated by a virulent tweeting from The Atlantic's Derek Thompson last year: "MoviePass is not a business, it's a capitalist social protection program that redistributes hundreds of millions of dollars in capital. risk to subsidize American leisure. "

The joke here is based on the fact that venture capitalists – who can certainly afford to light a few hundred million dollars – are the losers. But this is not really what happened with MoviePass.

Venture investors who had invested early in MoviePass had been paid when Helios and Matheson Analytics bought the startup, for more than $ 50 million. After the takeover of MoviePass by Helios and Matheson in 2017, the price of the service was reduced to $ 10 a month and the gigantic losses, in the order of hundreds of millions of dollars, began in earnest.

At the time, Helios and Matheson, led by penny stocks guru Ted Farnsworth and linked to an Indian company accused of massive fraud, appeared on the Nasdaq with the HMNY symbol. To cover the losses of MoviePass, Helios and Matheson flooded the market with millions of new shares.

Many retail investors who believed in the MoviePass product seized the new shares to see the value of their crater while the stock fell by more than 99.99%. Helios and Matheson were finally expelled from the Nasdaq.

Last summer, I spoke to investors in Helios and Matheson, who felt betrayed by both management and Wall Street analysts who kept the notes "bought" for months, while their companies were making millions to help Helios and Matheson sell new shares. A retired investor, Ken, spoke about losing about $ 190,000 by investing in MoviePass.

As some of my readers have pointed out, these investors should have known better. Of course, they should have. But it's much harder to laugh at an unsuspecting investor who has lost much of his retirement savings – as Ken did – than to laugh at a VC that has made a bad bet.