In this episode, Steli and Hiten share a story of an anonymous founder who was in a sticky situation with his investors. Landing investors can be very encouraging for a startup; however, it is knowing the RIGHT deal for your company that makes the all the difference. Steli and Hiten remind us of the red flags we need to consider before saying “yes” to that investment and the importance of separating emotion with sound judgment when it comes down to decision time.
Time Stamped Show Notes:
00:49 – Today’s episode is based on a story of a founder who asked Steli for advice
01:00 – The first set of questions are NOT the real problem
01:13 – The founder raised $1M
01:15 – $600K was spent to get a VP of sales who hired a team to do outbound sales that didn’t work
01:25 – The founder basically wasted 60% of his raised capital
01:30 – The founder wanted to learn how outbound/inbound sales work to grow his business fast
01:49 – Steli assessed the situation with the founder and was wondering why there was such urgency
02:15 – The founder told Steli they weren’t running out of money
02:37 – Steli asked why they needed the outbound sales to work while inbound sales were doing just fine
02:58 – Steli found out that the founder needs to hit revenue milestones set by the investors who gave the $1M
03:19 – Missing milestones will convert to HIGHER interest on the investors’ money
03:31 – The problem is hitting the revenue milestones in a short period of time
03:43 – 15% of the founder’s equity will be lost to the investors
04:07 – The timeline presented was 4 months, but it took them 1-2 years to hit $20K MRR
04:23 – The founder needed to hit $60K MRR in the next 4 months
04:41 – The founder started presenting wild ideas he could do to reach his $60K target
05:17 – Steli learned that by the end of 2017, the founder would need to raise capital again
06:20 – The model the founder was building was likely to crumble
07:10 – Hiten asked the founder, “What if you just shut it down?”
07:30 – He asked because the business may not work in the end
08:42 – Founders are sometimes TOO optimistic, to a fault
09:36 – Ask your investors for some sort of compromise
10:40 – The founder didn’t want to consider other options
11:23 – Look back on Episode 17 – The Art of Quitting
12:37 – Look for evidence for why the business should continue
13:09 – Should the business continue?
14:22 – It’s rare for an investor to set revenue goals
15:56 – It’s common for investors to implement a structure for businesses with aggressive projections
16:53 – “Split the logic and split the emotion”
17:38 – Have the conviction to push through
18:37 – What is your emotional state of being?
19:41 – The founder felt he could not accept the reality yet
19:57 – Paying a small cost vs risking the whole business
21:26 – Steli thinks the founder just doesn’t want to own up to his mistakes
22:30 – Take a stop on your emotions and look at your realistic options
23:42 – Think long-term
24:20 – That’s it for today’s episode!
3 Key Points:
Don’t put yourself into a deal that can compromise your whole business, even if the amount offered is a generous investment.
KNOW when you need to stop. Ask yourself: does your business still make sense or will it be more beneficial to exit/liquidate your business at this point?
Own your mistakes—it’s only then that you can move past it.
Episode 17 – The Art of Quitting
Steli Efti: Hey, everyone. This is Steli Efti.
Hiten Shah: And this is Hiten Shah. Today, as we do sometimes with our podcast and this recording,
Key points in this episode
In this episode
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