“I actually did vote for the $87 billion, before I voted against it.” John Kerry
Fund raising can take some time. Several months can go by while you are closing a round.
Once investors have committed to you, it is critical that you don’t change your pitch. Or your strategy. Or your senior team. Or where you are located. Or anything else that is important to your business. Really anything at all.
Anything that you change has the potential to make people incredibly nervous. They might change their mind. Your consortium might fall apart. Really, you can only make matters worse. Not better.
What investors want to hear during the closing process is GOOD NEWS. More sales. More effective marketing. That new awesome person who has just joined. You know. Stuff like that. Not bad news. Missed sales targets. Fired employees. Delayed product updates.
If you really want to change things significantly, wait until you have the money in the bank. Close the deal, then you can change stuff. Keep in mind that you don’t want to breach your warranties…some things you will have to disclose. But overall, don’t change your pitch. Not a good idea.
If you have ever had any thoughts as to why it is critical to clarify the equity / IP position when you start working on something and why founder vesting is crucial, then please read this story of the SnapChat founder cluster fuck:
I think there are three points here that really matter:
1) The equity position in a new company needs to be clear from day one.
2) All founders must have founder vesting and good leaver / bad leaver provisions from day one.
3) All IP needs to be assigned to that company from day one.
Now, how realistic is it that this will happen on day one? Not very much. However, unless those three points are clear, you will have significant risk in your business that you will have to tidy up sooner or later.
Strikes me that some law firm should publish basic papers that founders can fill in to have a fundamental working relationship and so that these things can’t happen.
A London-based entrepreneur, whom I have been mentoring briefly, just emailed me and told me he had to shut down his (promising) business. The reason for this was a fall out between him and his Berlin-based business partners.
Both in my own companies and companies where I have had only tenuous involvement, I have now seen this pattern over and over again. Distributed teams just don’t work well in the early stages of a startup. I have now come so far as to say that I want to have no involvement of any kind with distributed teams.
“But Jens, Skype had a distributed team. As did Kickstarter. What are you on about? Clearly this can work!”
Yeah. I would suggest you go to the people who were involved with those businesses in the early days and ask them how well that worked out. Read this re Skype (“us and them mentality”). Watch this re Kickstarter (started in 2002, took seven YEARS to get anywhere and the team worked from multiple locations on various jobs to get by, very long and hard slog indeed).
I personally find that setting up a company with the team in multiple locations is hard. Very hard. I would therefore really rather pass on that kind of setup. Having everyone in one room or garage is so much simpler. And that has produced a number of great companies. Like this one. Or this one. Or maybe this one.
Update: Met somebody from a failing startup yesterday. CEO and CTO in LA, developers in London. It really doesn’t work…