What's 🔥 in Enterprise IT/VC #297

Know when to hold 'em, know when to fold 'em...finding a clear path as you extend runway

Jul 09, 2022

As a number of founders and investors are thinking through burn rate models and balancing growth with expenses, many reference the conventional wisdom of choosing to be default alive or default dead. Frankly I don’t know what any of that means, but the only thing I can say is that there is no conventional wisdom and every company is in a different place and has different reasons for making decisions. Whatever you choose to do as a founder, make sure that you are building a clear path to get to the next milestone and not just extending runway because you simply don’t want to give up. There has to be a there there, call it default fundable or default value creation on exit. I’ve seen times like this before so I’m reviving an old blog post from Feb 2011.

Know When to Hold’em, Know When to Fold’em

“I had a tough call with an entrepreneur this morning. His company raised a fair amount of seed financing but did not hit the milestones it needed to in order to raise a real round of venture capital. The product is nice but they took too long iterating and releasing a subsequent version while the market around it moved much quicker. In the process, the company ramped up too quickly before it knew exactly what the core value proposition was and to whom. Net net, the entrepreneur was left with a few choices: skinny the company down and try to get to breakeven, look to existing Angel investors for a bridge, shut the company down, or try to sell the business. I am not going to go through each one of the above decision trees in this post, but given the market dynamics today and the overflow of angel funding, I am sure that this is a conversation that many an angel and entrepreneur are having right now. Net net, way too many companies have received angel funding and many of these companies will not raise subsequent rounds of funding.

That is ok as that is how markets work. If you are in this position, all I can say is don’t give up but also be honest with yourself and team. Assess your strengths and weaknesses, dive into the market and opportunity, and be as lean as possible to give you as much time to get to where you want to go. If you decide to fight through it and pivot and have the support of your existing investor base then great. Many companies have been successful that way. If you decide it is time to move on and capture whatever value you can for the assets then great as well. Just make sure that you have this conversation with your investors earlier rather than later to ensure you have enough time to execute on the new path. In the end, this process is not unlike what The Gambler from Kenny Rogers song had to go through at the table.”

You got to know when to hold `em, know when to fold `em,
Know when to walk away and know when to run.
You never count your money when you`re sittin` at the table.
There`ll be time enough for countin` when the dealin`s done.