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It began, as so many similar stories do, with a series of tweets. On September 4th, a writer at The Outline, a news startup founded in 2016 by Joshua Topolsky, posted that she and several of her colleagues had suddenly been laid off, leaving the site with no staff writers whatsoever. This was met by expressions of sympathy from others in the media, but also an element of disbelief. After all, hadn’t The Outline just announced a $5 million round of funding in May? Where had all the money gone? Some writers, angry at what appeared to be another VC-backed startup taking advantage of freelancers, published an open letter saying they planned to boycott the site.

The Outline may have been well-funded at one point, with a reported valuation of more than $20 million, but by last month it was anything but, according to multiple sources with knowledge of the company’s financial situation. Much of the money announced in May was gone before the news about the round was released, and the site was trying desperately to engineer some kind of alternative financing—including, at one point, reportedly entering into talks with owners of the New York Observer about injecting some capital into the company, in return for The Outline taking over management of the paper formerly owned by Jared Kushner (the talks never went anywhere and Observer officials didn’t respond to a request for comment).

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So how did this alternative media venture become just as broken as the outlets it hoped to displace, laying off dozens of staff in round after round of downsizing? The answer is partly editorial ambition (or hubris) and partly poor timing, and provides yet another example of how venture capital funding and building a digital media business rarely go well together.

When The Outline launched two years ago, it seemed full of promise. Topolsky was a former digital editor at Bloomberg and one of the co-founders of tech news site The Verge, part of Vox Media. He raised $5 million from a series of venture capital funds, several of which had also invested in BuzzFeed and Business Insider, in order to start what he described as an alternative to media as usual, a way to fix a broken industry. Instead of focusing on raw traffic, he said, The Outline would be more authoritative about fewer key topics, and its advertising would be higher quality and therefore more effective.

When The Outline launched, it had about 10 full-time staff, including veteran writers and editors like Aaron Edwards from BuzzFeed, Adrianne Jeffries from Vice Media’s Motherboard site, and Amanda Hale from Talking Points Memo. The site soon had a four-person video team, and added a number of high-profile writers who worked out of its office on the Lower East Side of Manhattan. Its website, which often looked and functioned more like a mobile app, got largely positive reviews, and there were high hopes for its customized approach to advertising.

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A source close to the company say the board encouraged Topolsky to spend more and expand quickly, assuring him there would be no problem in finding more financing. By late last year, however, the media environment had soured. Vice Media and BuzzFeed were said to have missed their revenue targets for the year by as much as 20 percent, and Mashable—a former digital media superstar—was forced to sell itself for a fraction of its previous valuation, to Ziff Davis, which immediately laid off 50 people. A tight advertising market and the increasing dominance of Facebook, as well as the lackluster performance of video, meant sharply lower traffic and revenue numbers for just about everyone in the business.

At first, The Outline seemed to have figured out a way to make it work. In April, Topolsky said his ad strategy was working so well that clickthrough rates were 25 times the industry average. Then he announced a new round of funding in May, another $5 million from existing investors and several new funds. In a Wall Street Journal interview, Topolsky said the site (which then had more than 30 staff and 3 million unique visitors a month, according to internal analytics), had kept its funding round small because it didn’t want to suffer from inflated expectations.

According to several sources, however, this wasn’t entirely true. The site very badly wanted to raise more than $5 million—and in fact needed to do so to keep up with its burn rate—but had failed to find enough investors willing to sign up. Also, the announcement didn’t mention that most of the funding had come in months earlier, and had already been spent. So even as it appeared to be flush with cash, the company was actually getting close to running out of money, based on the amount it was spending.

In June, two writers were laid off, although Topolsky initially made it sound as though they had been let go primarily because of performance issues. He later apologized for expressing himself badly (his tweets have since been deleted) but maintained the site was healthy and expanding. In fact, former staffers say revenues were growing increasingly strained, as deals that were said to be in the pipeline never materialized.

Even those who express admiration for Topolsky and his vision say The Outline’s launch was too ambitious by far, and that the company raised too much money too early in its life cycle, and made promises it couldn’t keep. Instead of trying to build an audience and a business slowly and then look for funding to expand, the site came out of the gate with dozens of staff and lofty (and correspondingly expensive) ambitions. It was a mistake borne of the expectations of outside money.

The video team, for example, was described by a number of sources as an expensive mistake, one that did very little for several months other than cost the company a lot of cash (most of the team were hired before The Outline launched), and was too advanced for a small startup. The group was laid off in December, followed by two writers in June, then two more writers, several developers and support staff two weeks ago. One source says the managing editor is now doing at least one other job, and editors have been told that they also have to write.

Meanwhile, the decision to carry only customized advertising might have ultimately been the right one, but media industry insiders say it also locked The Outline into a very expensive model, since customized ads are time-consuming and labor-intensive. And while its clickthrough rate may have been higher than the industry average, it didn’t have enough clicks to justify the kinds of ad campaigns it wanted to attract.

Topolsky, meantime, maintains that the site is not running out of money, and that the recent cuts were a prudent move designed to get The Outline closer to profitability, which he says is doable. “We have to think about the future of the business,” he said in an interview, “and proving profitability sends a really strong signal to the market about potential for future growth.” He says the original plan, which was to launch The Outline and then expand by launching a series of other media brands, is still very much alive, and that he is “cautiously optimistic.”

“We are not a monolithic corporation,” Topolsky told the Observer. “We are not executives in corner offices hoarding money. We’re journalists trying to make something good, and making hard choices to keep a business alive so we can fight another day.”

Correction: A previous version of this story said Vox Media acquired The Verge, but the tech news site has always been part of Vox Media, formerly known as SB Nation.

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Mathew Ingram is CJR’s chief digital writer. Previously, he was a senior writer with Fortune magazine. He has written about the intersection between media and technology since the earliest days of the commercial internet. His writing has been published in the Washington Post and the Financial Times as well as by Reuters and Bloomberg.