In 2012, I decided to help 2 of my friends with their new venture. It sounded exciting and poised for success. I knew the founders since 6-7 years. Sales projections looked great and we were just waiting to complete the product, while we had a bunch of potential clients lined up. Fast forward to 2016, we still have no product, talks with the potential clients never happened and one co founder left with half the money that we are still trying to recover, which will likely never happen. Though we are in a much better position compared to 2015, its nowhere close to what we thought we will be in 2012.
So, what happened? Would I do it again? What would I do different?
Yes, I would do it again. But this time, with some learnings. Most of the articles I came across, only talk about founder’s side of the deal. Following are 7 of my learnings form an investor’s point of view.
- Running a business is hard. Projecting is easy, making that happen is the real deal Make sure that the projections have some solid baisis. We had potential clients that we never talked to, it was all on paper and factored into the valuation. You see the problem right there. All were engineers, no one had any experience with sales and marketing.
- Track progress of product development. If a product is not complete, make sure there is a schedule to track the progress. The release of funds should be mapped to milestones, this is so that the deliveries happen as promised. And if not, the delays are accounted for. I released all the funds at once. Looking back, I should have worked out a schedule with the founders.
- Vest stocks, even for the founders. This is to prevent people form leaving with stake and and then the hassle of settling. Last thing you want is to have a person not in the company having considerable stake, quitting one month after starting. Agree on a vesting schedule and put that in place.
- Legal is important. Make sure all “verbal” contracts and agreements are on paper. Hire a lawyer, put down all the terms on a paper and sign. Its hard to refer to verbal contracts in case its needed.
- All expenses must be recorded. This is important so that the investor can rest assured that the money is spent on what it was issued for.
- Always transfer money in the company account. I transferred money to my friend’s account since the company account was not up yet and after leaving, he disappeared without ever transferring that money back to the company. Good thing, we were able to transfer all the company shares out from him.
- Finally, if something does not feel right, walk away and try finding another venture. If there is already friction in things as basic as people, finances, legal maybe its a partnership that does not work. It is extremely important that investor and the founders are aligned on the direction of the company at a high level.
To wrap it up, I now I have full confidence and trust in the team we have now. Me and my partner are now battle tested and have a high level of trust between us.
“A ship in a harbour is safe but that's not why ships were built”
Go, build stuff!