Being jilted at the altar of a venture capital deal happens
Left at the altar. Painful. Expensive. Humiliating. And even worse, you still have to pay the caterer (in this case, the attorney).
I have recently had a close-up and personal bird’s eye view of being jilted. Not me personally, but a company where I am an investor. I had already sent wedding presents, so my expectation at the church ceremony was that after the vows, I was headed for the Champagne and caviar reception. But no such luck.
Venture capitalist phone call, Dec. 13: “I woke up, and my wife made scrambled eggs. They were overcooked. I have told her for 20 years that I hate hard eggs. By the way, we are pulling the deal. Good luck.”
First, being tossed at the last minute does happen. But not often. To quote Keith Rabois (Khosla Ventures) and David Rose (Gust), “Reputable venture capital firms rarely back out of a signed term sheet. I have only seen it less than 10 times in 15 years of working with startups.”
If you are the CEO or founder who just got gut-punched, after spending six weeks and multiple calls with the entire investor group, signed term sheet, done deal, only deciding on where to honeymoon, exchanging family photos and picking a closing dinner menu, you can be forgiven for considering violent acts of retribution.
But being screwed over comes with the territory of a startup. I stood in those shoes once a long time ago, and yes, same story, signed deal, $10 million financing, jilted by a big-time Silicon Valley VC. What is it about December and peace on earth, goodwill to men that some VCs don’t understand?
What investors look for in
founders is the ability to take a few punches and not run crying from the arena. Mike Tyson famously said, “Everybody has a plan until they get punched in the mouth.” Whether a punch or a pivot, no company ever travels a path that does not have potholes.
It is obvious that as an entrepreneur, you need to have determination and resilience. The puzzle for the investor is how to determine if your founder has that quality before you write a check. It is hard to know if someone can swim without throwing them into the pool. However, in this most recent case, the ability of the team and the CEO to recover has been impressive. They took the standing eight count, and then came back into the center of the ring ready to counterpunch. Cue Rocky and Raging Bull.
And as I have often told my shrink, the reason entrepreneurs do this stuff is not for fame or fortune, it is for revenge. The best of all worlds is to now go raise more money at a higher valuation and be massively successful. That is the stuff that dreams are made of.
In 1998, Larry Page and Sergey Brin, founders of Google, approached Yahoo to sell the whole thing for $1 million. You know how that story ends.
Yahoo tried to acquire Facebook in 2006, offered $1.1 billion, done deal, except Terry Semel, the CEO, changed the offer at the last minute to $800 million ( just wanted to make the deal a little better), Zuckerberg told him to take a hike. You know how that story ends.
Microsoft tried to buy Yahoo. Yahoo kept saying no. They did Microsoft a favor. The Pebble watch company had an offer of $740 million, said no and sold one year later for $40 million. The tech world is littered with stories of hubris, miscalculation, greed and stupidity.
Nassim Taleb created a concept called “anti-fragile,” which means more than just being durable. He says, “Something that is antifragile actually becomes stronger when it is damaged.” The key question is how do you create a company where you can make uncertainty work in your favor?
Thousands of words have been written about the entrepreneur’s need to have courage and dedication, and so forth. But those are only words, and now for this little company, they get the glorious opportunity to try to put them into practice.
Me, personally, I do all the cooking in the house, and my wife doesn’t even like eggs.