This past week I was in “UberLand”, the dreaded zone of over-commitment that generates heroics. It is never good to go there.
Why did I go there? Because a first-time founder needed some
A great VC with a positive attitude had arranged for a quick loan (“bridge loan”) so the startup could meet payroll (Pay day was coming up in 14 days and the startup had run out of cash). The VC was part of a group (“syndicate”) of VCs in the last weeks of closing on a large round of financing for the startup.
So I began working day and night to assist this startup
complete its first bridge loan. Every legal step had to be done yesterday. Bank
accounts had to be created, along with a ton of documents used to prove the
company was not in the drug money laundering business. That required a bunch of
permissions in the form of legal resolutions by the board of directors, all of
whom were traveling on business in various continents of the world and each had
to sign and pdf many emailed documents by the hour. And then there were the
loan documents and more signatures. And, and, and.
What happened? In spite of extraordinary efforts on everyone’s part, the startup needed 24 more hours to avoid missing payroll. The banks were closed for the American Thanksgiving Day. Yes, after the immense energy expended, this startup founder missed the payroll funding goal. (But it was not the end of the world: both of the co-founders had wisely kept the employees up to date on the VC financing that has been going on for three months, so no one got upset.)
But for one of the first-time entrepreneurs, that spelled
“failure”. And he is Asian so that added a bit of face-losing sting. He now
has added this experience to his lessons learned in the school of hard knocks.
It is all about how to accept failure in startups (I am confident this young man will
continue to learn: He is a fast learner with a bright future ahead of him and
He called on Monday to say the money had arrived in the startup’s account, transferred as agreed from the very cooperative VC by the very cooperative bank (Silicon Valley Bank). He sighed with relief and then said he had to hang up to start working on delivering the due diligence material required to close on the current round of VC funding (another high pile of legal documents).
So what can you learn from this rush episode? Try these:
- Plan on every task taking X2 the days you think it should. Entrepreneurs are always overly optimistic.
- Respect the complexities of legal and banking matters. Centuries of legal and financial work has led to mountains of documents required for even small sounding tasks (like opening a bank account). Drug smuggling and terrorism have added hurdles.
- Chief Financial and Administrative Officers are very valuable to startups. They know how to get the most done the fastest with the least cost.
- Pick VCs and bankers for their attitude. They all have
money. You’ll have to live with them for half a decade or more after you get their cash. Chose individuals you think will go the extra mile when you need it
(without putting you through hell).
BOTTOM LINE: “Haste makes waste” is the old proverb. Speed is part of startups. They have a high sense of competitive urgency. Too much of anything is bad, including speed. Learning to respect the time required by legal and financial projects is part of your education. When grasp all of that, you’ll have what it takes to negotiate better deals, as well as reduce the cost of time and mental anguish when doing important events. And you’ll miss less payrolls. They you’ll become a veteran of a startup. People will respect you even more than they already do. Your experience will add to your unfair advantage.