Feb 13 2008


I hate failing.  But in the world of venture capital it happens – and on a somewhat regular basis with between 1/5th and 1/3rd of venture backed companies failing to return capital invested (see a great Union Square Ventures post on the subject here).

It’s an excruciating experience.

While the actual “failing” part generally happens very quickly the “leading up to failing” part takes forever.  Typically the company goes through a handful of rounds of layoffs and pay cuts.  A sale process is initiated to find a buyer for the business and perhaps an investment banker is hired.  If the company has secured creditors (like bank debt or an equipment line) there are endless calls and negotiations to try to keep the lights on long enough to see the company through to a transaction.  Analysis is done and re-done to figure out what the company’s obligations are if the business is liquidated.  Tuff questions are asked about the payment of severance to employees, how to stretch payables and minimize future liabilities. Towards the end, as things accelerate, there are many emergency phone calls and sometimes heated and emotionally charged conversations. There are last minute hopes of some kind of sale, hail mary attempts to entice a buyer and last minute negotiations with potential sources of new capital.

And the pay-off for all this work is, at best, a partial recovery of capital (often very limited) and the feeling like you did the best you could for the company and its employees.  In the really bad cases the employees are fired and the company simply shuts its doors.  While I’ve never been involved in the latter situation, I have had the experience a few times of the scramble for partial recovery of an investment. I’m told I take this process way too personally which is in part why I’m writing this post – a little catharsis through blogging.

Failure sucks.  But its a part of being around early stage companies.  I like to think that all of my investments will be wildly successful, but even the very best investors don’t get it right 100% of the time . . .