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Facing Reality Often Means Looking in the Mirror
There were no smiles in the room after I had presented my findings. Both the investor and Fred’s team had major roles in creating the train wreck. The question was, “now what do we do?” That was going to be the hard part because there were no easy or painless solutions.
“Look,” I said, “there are only a few ways forward that make any sense. The first is to put the company out of its misery; declare bankruptcy and close it down. You can then work out who owes whom what. The second is to renegotiate your understanding and find a new way forward. That would require both sides to find reasons for doing so. I would be glad to facilitate that process but would insist on certain undertakings from both sides beforehand. The third option is to reach an agreement that allows you to go your separate ways without closing the company. That would involve the management team ‘buying out’ the investor. It is not possible that the investor could be made whole if that means returning the funds advanced. But there may be alternative arrangements that would make sense.”
It took a couple of days for both sides to sort out their options and preferences but they finally decided on the third way forward. We set about negotiating the terms of an amicable separation. But that is a story for another time. For now, the lesson I want to highlight is -
Be careful what you wish for. Wishing and having are two very different things.
© Dr. Earl R. Smith II
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Related Articles:
- Of Course … The Tragic Mistake – Part One: Diagnosis
- Of Course … The Tragic Mistake – Part Two: Designing the Fix
- Of Course … The Tragic Mistake – Part Three: Let the Coaching Begin
- Of Course … The Tragic Mistake – Part Four: To Be Or Not To Be
- Investors Are Human Too
- The Money Chase: Breaking the Truce
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11 Responses to “Fred Got Funded – And He Hasn’t Had a Good Day Since”
Sorry, the comment form is closed at this time.
Chasing investor dollars feels a lot like being the ugly kid at the school dance. You want so badly for someone to dance with you that your desperation makes you even less attractive. Now that I’ve taken a few dance lessons and grew out of my “ugly” phase, I’m no longer willing to dance with someone who is going to step on my feet all the time.
In my last venture, we spent so much time and energy chasing (and being lead on by) investors, that it ran us out of business. Now most of the old team is involved in one of two startups. Both these new businesses are designed with less emphasis of investment dollars and more emphasis on customer dollars and strategic partnerships. This strategy has made our businesses viable a lot quick and greatly reduced our stress levels.
Stefan Popadiin wrote:
yep! cash is bad before you learn how to earn it!
Khalid Munir wrote:
Businesses in different parts of the world with different economic standings undergo different experiences. The key question before leaping into whether business is to be started or not is the same as pointed out by Elizabeth . . . how many people are prepared to buy your products or services. This is the most critical question even if your core offering is the most wonderful product or service on earth. This is where people are trapped in illusions. Knowledge of market size, of product’s competitiveness and of buyer’s buying capacity create these illusions but the famous saying ‘ several slips between cup and the lips’ is often ignored. Finances are as important as anything else but then you see unless all loops which fall within the bigger loop known as business cycle is visualized and well thought over something always goes wrong.
That is not all. Even beyond that there are other factors which may come into action and ditch the whole plan. I wish I had time to share experiences but still I ‘ll love to continue this discussion.
Sincerely
Khalid Munir
Vic Williams wrote:
I’ve been in crashes, sometimes a big market shift so the product was a miss-fit (in a way quite like your example), or a product clash with a regulator, software to operating system upgrade clashes, culture (China to other). I think your example is apt, and the causes can come out of the undergrowth even with preparation.
A good team should be able to adapt on the go. The plan is the map, and the map is the menu. We eat the meal not the menu. Use the map or menu as a guide and look to go beyond its roads, and even go off-road.
Jim Janco wrote:
Interesting experience.
I’ve been in several situations similar to Freds….and from both sides.
Fred committed the most common mistake for a start up seeking Venture Capital. Believing the dream, before considering…. Where’s the beef?
When I’m on the presenting end – here are a few questions I’ve asked myself since:
What do I do when some actually writes the check?
What’s more important, the start up cash, or delivering to an angel investor?
How can I front load this to provide a quick return to the investor? NOT Maddoff style.
How can I most effectively instill confidence in my investor that will entice them to bring more $$$ to the table if necessary to grow?
Knowing what I know, would I give me the money and feel good about it?
As an investor, or bringing investors to the table… but these questions work in reverse if your seeking VC:
Where’s the beef?
What are the numbers and Third party support?
Do the number tie or is everything ‘an illustration’?
Am I working with a dreamer? Not that dreams are bad, but I don’t want their dream to become MY nightmare.
When the music stops, who’s left standing without a chair?
Do they have skin in the game?
How many of these have they tried before?
How much an I willing to LOSE????
Elizabeth Gage wrote:
The interesting thing about being a woman entrepreneur is that the odds to obtain financing are against you. In fact, only 3% of women entrepreneurs get funded. Because of this I have always focused on sales. Until someone buys something you really don’t have a business anyway. With a real customer (3 is better) you have a chance to fine tune a business model for profitability. It’s amazing what you learn struggling through this process. In fact in one startup I learned that what I thought at biz plan prep, as our niche of ‘ready-to-buy” customers was in fact a list of long cycle ‘if at all customers’.
Businesses need time to grow and too many investors don’t seem to get this. They want a high rate of return within a certain time period. Time is anyone’s guess.
As an entrepreneur I think an investor needs to be a cultural match and offer some high level expertise to the company. Maybe it is their connections or finance acumen but without something other than money the relationship is hardly useful.
Sincerely,
Elizabeth
Amit Srivastava wrote:
How often you ask? It is the nature of life.
When I was kid, I wished to grow up soon. As a grown up I always think life was much simpler and happier as kid.
When renting I always wished to own house. After owning realized it comes with a big “to buy” and “to do” list.
I can keep on going, but lets rather focus on learning, solutions and strategies.
Firstly, from personal experience, I feel that no matter how prepared and planned I am there are always surprises. So, plan meticulously but leave room for surprises.
Secondly, when in quandary after getting what you wished focus on the positives. You must have had reasons to wish for this, and those same reason can be your elixir to motivate you to keep going and cross the hurdles.
Lastly, never let these problems stop you from wishing or dreaming. Those who wish are the ones who get!
Khalid Munir wrote:
I have added the following submissions
“Businesses in different parts of the world with different economic standings undergo different experiences. The key question before leaping into whether business is to be started or not is the same as pointed out by Elizabeth . . . how many people are prepared to buy your products or services. This is the most critical question even if your core offering is the most wonderful product or service on earth. This is where people are trapped in illusions. Knowledge of market size, of product’s competitiveness and of buyer’s buying capacity create these illusions but the famous saying ‘ several slips between cup and the lips’ is often ignored. Finances are as important as anything else but then you see unless all loops which fall within the bigger loop known as business cycle is visualized and well thought over something always goes wrong.
That is not all. Even beyond that there are other factors which may come into action and ditch the whole plan. I wish I had time to share experiences but still I ‘ll love to continue this discussion.”
Sincerely
Khalid Munir
Wallace Jackson wrote:
Self-Funding & Sweat Equity Production is the way to go to avoid control nightmares!
Francisco Laborde wrote:
My advise to the start-ups:
1. Focus on the customers’ needs and expectations.
2. Understand what quality is and how to get it.
3. Start small and grow slowly.
4. Don’t sell your ideas. Sell your products and services.
Fungus
Phil Lauro wrote:
Actually prepare to receive what you wish for, not the fiction that tends to crop up in your head that focuses on all the benefits and none of the less attractive parts of running your own show.