What Critical Thing Do You Not Realize As A Founder?

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I was at a lunch meeting with the head of the venture capital fund that was sponsoring me as Entrepreneur in Residence (EIR). I said to Mike, “I know if we get funded, we will succeed.”

Mike looked at me and said, “I can think of 100 things that will kill your company.” Mike’s tone indicated he didn’t want to be challenged.

I thought to myself, “What a jerk. Sure, there’s the possibility of something going wrong, but none of that’s going to happen to us.”

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You don’t realize how fragile your startup truly is.


Mike was right. I don’t know if there are actually 100 things that can kill your company, and I certainly don’t want to count all the possibilities. That would be too depressing.

However, Mike’s sentiment was right. You just don’t realize how fragile your company is when you’re just starting out.

Any number of things can kill even the best run, best financed startup, staffed with the best people. Don’t think for a second that you are immune from these things happening to you.

Here’s the one absolutely worst, nightmare inducing scenario for any startup CEO:


You lose your investors support.


There are many ways this can happen to you. For example…

Shortly after that lunch meeting with Mike, I started raising money. Then, Dave, the partner that was sponsoring us at the firm, asked me to stop contacting potential investors.

Dave said there were concerns the partners at the fund had about the investment. He asked me to complete what he called some, “Fetch a rock” requests from the partners.

I asked Dave what that meant. Dave said,

“I throw you a rock, and then you bring it back. You think you’re done, and then I say, ‘fetch another rock.’ You fetch the rock again. You’re asked to keep fetching rocks until you get tired and give up.”

Dave suggested that I might want to look at the possibility of the fund not supporting the investment. Dave wouldn’t give me a reason for the change of heart.

I held out hope that maybe we could fetch the rocks and change the partners minds. Finally, about one month later Dave explained to me that he was being asked to leave the fund, so he wouldn’t be able to sponsor the deal at the fund.

Who would have guessed that the partner sponsoring you as an EIR would be forced out? I would have never believed in a million years that would happen. But it did happen.

I was on my own now, but I was still very confident that we would be able to get funded. We had a great team and great plan. What could go wrong?


The loss of support from the VC fund led to a cascading set of events.


Read on…

Now that I was free from the grip of the VC fund, I started raising money again. Within one month, we landed what would be our first investor.

The fund was a well-respected fund on Sand Hill Road. We were raising $11M, and they committed to giving us $5.5M.

We signed a term sheet with the fund in April. Everyone I knew told me that finding a second investor would be easy now that we had a first investor.

Except that didn’t happen for us because, yet again, external events came into play. This time, the economy took a turn for the worst.

What we didn’t know at the time was that the US was entering its worst financial crisis since The Great Depression. For about one year, the climate for investing in early-stage companies became toxic.

Everyone turned us down. And by everyone, I mean everyone. 63 investors said no thanks.

We had only two investors left on our list to contact. We had been avoiding both firms because we had heard negative things about working with them.

But, when you’re down to nothing, you have no choice but to take a chance. So we reached out to the partner at the fund (we will call this fund “Donald Ventures”) who was expert in our space.

Three meetings later we found our second investor. End of the story, right?

Not so fast.

Everything went well between us and our investors at first. The investors were happy with our progress, and we continued executing to plan, adding customers and revenue at a good clip.

It became time to raise our next round of funding. Both our investors, Gill and “Raul”, agreed to do their pro-rata.

The climate had gotten tougher for semiconductor companies to find funding than when we raised our original funding. It took us about three months, and then we received a term sheet.

The next day, I had a call with Gill and Raul.

“I agree to the term sheet,” Gill said.

“I agree to the term sheet,” Raul said.

All we needed to do was close our funding. If you haven’t realized this already, nothing is done until the money is in the bank. So we started moving as fast as possible to get through the final diligence and get the money in the bank.

About two weeks later, I was meeting with Raul in his office on Sand Hill Road. It was our normally scheduled meeting before next week’s board meeting.

Seemingly out of nowhere, Raul said to me, “I think we should sell the company.”

Raul’s tone indicated he was deadly serious, but I was having trouble processing the words.

My heart rate spiked. I could literally feel my heart beating. In fact it felt like my heart might explode out of my chest.

“What?” I said.

Raul repeated his demand. “I think we should sell the company. We might raise the flag and put $1M into the next round. But even that isn’t a given.

“I think we should sell the company.”

My heart started beating even harder if that was possible. Raul and I started arguing with each other.

Raul actually seemed to be enjoying my predicament. He was calm, and I just lost it.

Eventually, after about 45 minutes, I left Raul’s office. A sense of dread swept over my body.

That sense of dread would stay with me for the next year.

We would have to find another investor to replace Raul, keep the new investor in the deal, and keep Gill and his fund happy.

Two months later, we received a second term sheet from a fund based in Boston (Silicon Valley was out as a possible source). Again, I was thrilled.

The sense of dread left my body.

The Boston investor knew about Donald Ventures not supporting their portfolio companies, so they added a clause demanding each existing investor put in a minimum of $1.5M. Raul blocked the deal, saying his fund would only put in $1M.

Again Raul renewed his demand that we sell the company. My sense of dread came back again.

But we had three other investors that were pretty close to giving us term sheets. I felt confident that we would be able to close another investor.

So now the challenge became finding a third new investor while keeping the new syndicate intact. We weren’t so fortunate. The Boston based investor smelled something was wrong, and they withdrew their term sheet.

I still felt confident we could thread the needle and get the two other potential investors to invest. One was a fund based in Pennsylvania, and the other was a strategic based in Texas.

About two months later, we were able to get both new investors to commit. We had a term sheet that required none of Donald Ventures money.

We were home free, or so I thought. Raul blocked this term sheet too, again demanding that we sell the company.

There was one trick I had left up my sleeve. It was a hail Mary pass, but, maybe just maybe, it would be caught.

We had a loan with Silicon Valley Bank. Maybe SVB would step in and help us because they were going to lose a sizable amount of money.

We had an emergency board meeting scheduled for the next day. During the board meeting, Raul called Gill to let him know that Donald Ventures would allow the deal to go through.

We had been saved. The sense of dread I had been living with for the past year left me.

For the next few days, I was euphoric. I was busy doing everything I could to close the money as fast as possible.

Unfortunately, it wasn’t fast enough. The first new investor, who had stayed in the deal for eight months, decided to pull out of the deal.

Who could blame them? Raul had created so much uncertainty that the new investor was worried about Donald Ventures being on the cap table in any capacity.

We tried to save the deal, but we couldn’t. Raul had won. We would have to sell the company.


The moral of the story is there are many unforeseen things that can kill your company.


Little did we know at the time that Raul and Donald (the head of Donald Ventures) were fighting. Raul, not surprisingly, lost the fight, and he told by Donald to liquidate his investments. We were just collateral damage.

I would have never thought we would get tripped up by problems the partner leading the deal had inside his fund. But we did not once, but twice!

The point is that startups are fragile. You hopefully will not go through the ordeal we went through, but you will have challenges along the way that could go either way.

The only thing you will have that will get you through is your grit.

For more, read: What Are The Five Fatal Mistakes That Will Kill Your Business?


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