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.

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This post was written by who has written 358 posts on BeyondVC.

2 Responses to “Know When to Hold 'em, Know When to Fold 'em”

  1. Greg Leman Mar 3, 2011 at 2:07 pm #

    A lot of startup CEOs repeat the mantra “Winners never quit.” Poppycock. Winners quit all the time — as soon as they figure out they’re doing something wrong. The trick is knowing when to move on to the next thing.

  2. Peter Kadas, MD. Jun 29, 2011 at 4:55 pm #

    I’m an entrepreneur for 16 years now. I had wins and losses. To be able to quit is not just a skill. It is the primary skill for an entrepreneur. I have two companies functioning more than great, as well as I also closed two other – because I was honest with myself, both quitting cases ended up with a result with being able to give back investments 100% to investors. I called these scenarios as a smart fail – I wasted my time, but didn’t waste others’ money. Entrepreneurs: to quit is not the end. To lose equity and trust of investors IS THE END.

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