About a year ago, KQED reported that an on-demand food delivery service called Munchery had abruptly shut down and filed for Chapter 11 bankruptcy. When it went bust, at least a dozen bakers and chefs in San Francisco that had prepared food for the company were left in the lurch.

It was a classic venture capital story: A startup gets a bunch of money, grows fast and then crashes, burning those it owes money to, particularly vendors and suppliers whose credit is not secured. When Munchery shut down, it owed at least $50,000 to small business owners in San Francisco alone.

But this time the story has a surprise ending. After a year, the bakers and chefs finally succeeded in getting their money back.

On Christmas Eve, a UPS delivery driver dropped off an envelope at Three Babes Bakeshop in the city's Portola neighborhood. Inside was a check for $18,000. “I was so surprised I shrieked,” said owner Lenore Estrada.

That check — almost all of the money Munchery owed Estrada when it closed last year — came with an unsigned note indicating it was from some "unspecified" investors and executives of the company.

Caleb Roark puts crumble on a blackberry pie at the Three Babes Bakeshop in San Francisco on Feb. 28, 2020. (Beth LaBerge/KQED)

Until then, Estrada had assumed there was no way she would ever get that money back. Under Chapter 11 bankruptcy law, the company was not legally required to pay back vendors like Estrada, even though they had taken her pies and sold them. Estrada was incensed. She refused to just sit by and allow the company and its investors to ignore her.

First, Estrada took to social media to call out Munchery and its investors. Then she decided to hold a bake sale protest outside the offices of one of the venture capitalists who had invested in Munchery. After KQED reported it, the story got picked up by national news outlets. Estrada thinks that attention did the trick.

[pullquote size='medium' align='right' citation="Lenore Estrada, Three Babes Bakeshop"]'There is something inherently wrong about the way the system is set up.'[/pullquote]

"I think if we hadn’t stood up for ourselves and I hadn’t organized that protest and if we hadn’t made it really really public and sort of embarrassing for the Munchery investors and executives, I definitely don’t think we would have gotten paid," she said.

Estrada calls the unexpected reimbursement a "Christmas miracle." It allowed her to give her employees holiday bonuses. But while grateful for the check, she said it doesn't excuse what happened.

While she was scrambling to cover her $18,000 loss last year, many Munchery investors were making ample amounts of money on their other bets. Take Menlo Ventures: The firm lost money with Munchery but hit the jackpot with Uber, raking in millions in returns that it's now investing in a new round of companies.

Zoe Williams boxes pies at Three Babes Bakeshop in San Francisco on Feb. 28, 2020. (Beth LaBerge/KQED)

This, of course, is not how business works for a baker or for any other small business. Think about it in terms of pies.

"If I make tons of money on apple pies but lose tons of money on cherry pies," Estrada said, “I still have to pay for the cherries and the labor to make the cherry pies."

Of venture capital, Estrada said, "There is something inherently wrong about the way the system is set up."

Menlo Ventures, one of the Munchery's investors, declined to comment.

Other venture capitalists, like Eric Paley, a managing partner at Founder Collective in Cambridge, Massachusetts, said he agrees with Estrada that there are some things inherently wrong in the system.

"Most of the venture industries are really driven off the home runs," Paley said. “Many VCs would rather push a business harder and see it fail than risk that it turns out to be an OK business."

[aside label="related coverage" tag="venture-capital"]An OK, or even a good business, might be good for society by doing something like, say, providing pies, but it doesn't deliver the windfall profits that venture capitalists are hunting for, Paley explained.

way of investing is increasingly becoming a part of how America does business. Venture capital investment in U.S. companies has risen every year since the financial crisis in 2008, and it is currently at an all time high.

According to PitchBook, $136 billion of VC money was poured into U.S. companies last year alone. To put that in perspective, that's roughly $415 venture capital dollars invested last year for every child, woman and man in the country.

Paley said the entire venture capitalist ecosystem has grown toxic, with many investors encouraging companies to grow fast at all costs.

"If you put rocket fuel in a really nice car, you’re going to blow up that car," he said.

And you don’t even have to blow up the car to do serious damage, said Gerald Friedman, an economics professor at University of Massachusetts at Amherst. Just injecting tons of venture capital investment, which needs big returns to pay off, introduces a dangerous level of volatility, he said. Or, put more simply, "Hot money makes economies less stable," he said.

Freshly baked pies at Three Babes Bakeshop in San Francisco. (Beth LaBerge/KQED)

Friedman and Paley both said there’s far too much venture capital in the system, which contributes to frequent booms and busts. Venture capitalists reap the rewards of the booms, but during the inevitable busts, smaller businesses who don't have large stockpiles of cash to absorb the blows bear the brunt.

"It creates an asymmetric situation. They can win, while you’re losing," Friedman said.

Estrada said she's happy she fought to get her money back. It means she can follow through with her plan to open a storefront at the end of March and focus exclusively on her business, rather than trying to hold venture capitalists accountable.

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That's important, because unlike in the world of venture capital, Estrada doesn't have the luxury of placing multiple bets and seeing which one pays off. She makes pies. And she only gets paid for the ones she sells, be they cherry, apple or bourbon pecan.

From this reporter's vantage point, not a single one of them looks like a bad bet at all.

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