Will Your Partners Support You When Times Get Tough?Back to home
Today I heard a story about a start-up that’s down to its last few months of cash, doesn’t have a line of sight to profitability, and is at odds with its investors. I’m not involved and haven’t spoken to the investors or the founders, but I do know the company is in a tough spot. Everyone knows it. Instead of coming together to find a way out, the founders and investors are at odds; they can’t see eye to eye, which is making a bad situation worse.
Every company is bound to hit a bump in the road. Some of the bumps will be painful for everyone involved. Today we’re in an environment where companies are facing the prospect of down rounds, which isn’t ideal for founders or existing investors. Down rounds aren’t the end of the world, though. Meta (formerly known as Facebook) did a down round in 2009. Knowing that hiccups are inevitable, founders should conduct their due diligence to understand how prospective investors have historically handled challenging periods with other portfolio companies. Depending on your circumstance, what you find out may not change who invests in your company, but it can inform how you interact with your investors or the term sheet details (number of board seats, etc.) you agree to.
It’s easy to get along with everyone when money is flowing, but the good times won’t roll forever. It pays to understand how the people you’re considering partnering with handle tough times.