May 6th, 2008 categories: Venture Capital
It pains me to mention how many times I’ve heard this phrase: “If I can only get through the door, I’ll sell this deal.” Sure you will – if the door’s made of Balsa Wood and you’re strapped with explosives. Short of that, you don’t “get through the door,” you’re invited in – and once you’re there (wherever there is), don’t be too discouraged if you hear chanting from the bowels of back office… “Dead Deal Walking!”
I know, you’re probably scratching your head right about now, wondering how this catchphrase relates to your big shot. In Vulture cackle, Deal Deal Walking is a fraternal battle-cry – a cheer of enthusiasm that assumes another “stew worthy” entreprenerp is about to be skinned, and there’ll be meat for everyone.
Alternatively, being labeled a “live deal” would imply that you actually stood a fighting chance of survival. Achieving this coveted status requires the following, at minimum:
- Post Revenue
- Proprietary Technology
- Disruptive or Revolutionary
- Viral Growth
- All of the Above
VC’s are in the game to accumulate equity, not help you preserve yours. The concept of win/win in Venture Capital means that the VC wins at the beginning and in the end. The beginning is where we squeeze you for value, force feed deadly conversion provisions, lay claim to your board, and handcuff you with first right of refusal options, to seal your fate. In the end, well, you’re pretty much there; you just don’t know it yet.
Flash forward, assuming you’re still employed by the company you founded, where it appears that the bludgeoning you’ve endured is about to show favor – a liquidity event is just around the corner – just not for you. By the time your dream is ready to pop (which is rarer still), you’ve most likely sacrificed more than 95% of your stake. Your upside now boils down to being offered the prospect of restricted stock held in the belly of a medium size acquirer (yuk).
If this doesn’t sound like your particular brand of vodka, I don’t blame you. Raising money is tough sport, and the odds of keeping it (and your equity) is even tougher. Now don’t get me wrong, I’m not encouraging you surrender to a life of aimless mediocrity or forfeit the challenge, quite the contrary; if you believe this is your chosen path, then take the path of least resistance.
Avoid becoming the walking dead by recognizing your place in the finance life cycle, and what options are “truly”available to you, at each stage. The real lesson here, is that dead deals don’t walk – because they don’t have legs. Unless you’re really one of the rare, “live deal” candidates, get used to hearing “Thanks for your submission, but unfortunately your opportunity does not meet our investment criteria,” or “We very much appreciate your submission, however at this time, our fund is focused on other initiatives.”
Parents are supposed to guide their children through the fundamental stages of development, and as my father once told me: “there are seasons of a man’s life, don’t skip em.” The finance life cycle of your business is no different. So in the unlikely event that you’re greeted by a Vulture and invited to the Bird’s Nest, be sure to keep your ears tuned for the whispers of dead deals past.