Over the past year we’ve had a number of portfolio companies reach a point where their businesses can’t raise more capital and they can’t find sustainability. This is the awkward middle ground of success where most startups land.
More startups end up in this place than those who die spectacular flame out deaths. The founders of the stranded startups still see the potential but options are running out. No more capital is available. You have numbers now and they suck. You’re not growing. You took an extra year to build the core product.
It’s an awkward place that generally isn’t covered in the press. It doesn’t make good headlines. I’ve been in that position. It sucks. It took me a year to recover from the experience personally, though I only realized I was recovering towards the end of that year.
I maintain a view than investing is a long-term business. Investments are primarily made in people. Businesses fail for reasons not generally related to the person leading them. Markets change. Luck and randomness go in favor of a competitor.
If you subscribe to the world view I subscribe to (read Fooled by Randomness) you know that skill plays an equal role as chance in determining success. Luck alone can make it rain. Skill alone cannot. Luck and skill combined create magic.
When I see a company in this position I choose to focus on the long-term. What opportunities can the founding team and I have in the future? There will be another company. And I want the founder to know that I am focused on that. This will not be her last company.
In the short-term I advise to do what’s right for employees and investors. Not every employee signed up to take the massive personal risk a founder takes, especially once a team grows beyond 5+ people. You need to take care of them just as they took care of you.
So when the ship is wobbling and the future is unclear, set the ship down gracefully. Your good investors care more about you what you do next than what happens with this company.
Take care of your people. Take care of yourself. Take care of your investors. In that order. Make decisions that minimize uncertainty and maximize the chances of creating opportunities with your team and investors in the future.
Those people will follow you. We will build another company together.
First published on May 4, 2016