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Your startup is dying — now what?

“Mann Tracht, Un Gott Lacht” (“Man Plans, and God Laughs.”)

We hope for the best, but are forced to plan for the worst.  Almost all VCs will have companies that fail. The CEO comes to us.  She has 3 months of cash left. Existing investors have said they’d be glad to invest…if she gets a new lead investor, which 6 months of searching have failed to generate.  Employees are spending a lot of time out of the office and in conference rooms, with their monitors angled so that you can’t see them on AngelList’s job board.

What do you do now?

At a certain point, your best move is to admit defeat and move on.  A quick, clean death or acquihire is far better than a slow, painful, litigious death.

Here are generally what we say to these companies:

Of course, we all hope that you raise enough money and/or get to profitability to keep the business alive.  That said, I wanted to share a few thoughts on how to prepare for the possibility that you’ll have to shut down the company.

    Don’t fight to the bitter end.  It’s expensive to shut down.  You’ll have to pay for severance, make sure you’re current on taxes, pay someone to sell off your furniture, etc.  It’s much better to calculate the total cost of shutting down, publicize it to the board, and then declare defeat once your cash in bank hits that level.
    Don’t surprise people.  Keep your investors in the loop on your current cash situation.  Lewis Gersh, a former VC and CEO of Pebblepost (in which I’m an investor), observes, “Investors love good news, and can handle bad news, but will not tolerate surprises.  Never forget, on their best day any group of investors is a step away from a lynch mob…and that’s their best day. 
    Consider a banker.  Have you hired a banker to try to auction the company?  If you can’t find a banker which will buy such an early-stage company (which is likely), I suggest at least mail directly all the likely acquirers with whom you have an existing relationship.  You have nothing to lose. Since your early days, hopefully you kept a list of likely acquirers and made an effort to get to know them. It’s dramatically more likely that a certain company will acquire you if they’ve been tracking your progress for some time.
    Outplace your team.  If you do have a large or a 100% round of layoffs, I suggest mail a set of the resumes to relevant CEOs and recruiters you know.  In your cover note, make sure to emphasize that you endorse the people you are sending, and are glad to provide references for any of them.  

Here are a few articles I suggest reviewing:

How to gracefully wind down a failing startup

How to close up shop on a failing startup

Is your startup failing? Here’s how to exit gracefully

Inc: What Should VCs Do With a Struggling Startup?

(c) 2018, which published this previously.

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