The Exchanges

Q Sure. They're losing money. Um, maybe they have eight months of runway. What should they start doing in terms of they, they want to sell the business. They want to have a soft landing, um, maybe return some capital back to investors. There's probably not going to be a lot of upside for the founder, or maybe there is Um, how, like, what advice would you give to that founder?

A Well, the first bit of advice, and sadly, uh, guys, this, you know, you and I were talking over the weekend, this is, this is more of the advice I'm giving right now because a lot of people are at the end of that runway, right? And my, my first bit of advice is you understand you'll probably get zero, right? And the reason I say that isn't, isn't to be negative. It's just to prepare people because what happens is five seconds ago, you raised a bunch of money. And you were at twenty million dollar valuation, hundred million dollar valuation, whatever you were at, right? And psychologically, it's just hard to understand that that could go from that to zero or some number close to it, right? Now, for most of the founders, they're like, I can't comprehend that because my whole life is in this. I told you all this money that it was worth something. And I'm like, oh, that's awesome. It's great that you did that. And it's probably worth zero. Now, when I say that, zero sounds like such a finite number, right? It sounds like, well, how does it be exactly zero? I start with zero. Because I said, dude, the probability that you will find a buyer at the end of this is extraordinarily low, which is why I always then point them back to you guys, because you guys have, you know, begun to change that equation. But think of statistically probability, how many things have to fall in place for an…

AI assessment note: “my first bit of advice is you understand you'll probably get zero”

Q Do you want to just start with, like, now I'm thinking, how did you do that?

A Yeah. Um, let me start with explaining to you how I understood that they could be bought because this was, you know, before the days of acquire.com in the olden days. Right. And so, uh, let me rewind back because guys, I think you can appreciate this having been through the self and now being, you know, with the venture backed startup here. Um, one of the first startups that I was running that was venture backed, uh, was back in the mid 2000 called afford it.com. It allowed you to buy stuff using weekly payment, literally exactly what a firm does. In Klarna and all those guys do now. We were like a decade before those guys. Sometimes too late, sometimes too early. We were too early. Doesn't matter. This was one of the first times that I had been, um, in a position where I'd raised money and run out of it. Didn't know what to do. Right. And so I did like what most founders do when I ran myself into the ground. I was like, no, this thing cannot fail. Let my ego get in front of it and just did everything wrong. At some point though, we actually ran out of money, right? Like there, there was nothing else we could do. And so I'm sitting there thinking, okay, I get it. We're out of money, but like, like literally what happens to this thing now that it's out of cash, right? Uh, well, it turns out, and again, a lot of folks don't know this, and this is like the premise of everything we…

AI assessment note: “let me start with explaining to you how I understood that they could be bought”

Q burnt. And so let's just say, pretend I'm, you know, that founder in that situation and I'm, I'm just ready to move on. I got a 12 months runway. I want to take care of my team. Um, You know, how should I start, you know, preparing for sale? How could I, like, what, what, what is the main benefit or outcome I should expect when I'm in that situation?

A Well, in most cases, whatever money you raised likely has a preference on it. So for those that aren't familiar, often when you raise capital, uh, so you raise ten million dollars, just making up a number, um, there's a preference which indicates that if you sell, that money has to get paid back first, and then whatever's left over goes pro rata, meaning by percentage of what else So in a lot of cases, by the time you get to this point, even if you've only raised a few million dollars, the likelihood that you're going to sell something and, um, get over your, your preference hurdle is usually pretty low, but that's okay. There's a part that people don't, uh, founders don't understand either. Why would you? Cause you've never done this. Um, is that.

AI assessment note: “the likelihood that you're going to sell something and, um, get over your, your preference hurdle”

Q in these situations, um, you know, how do you, how do you think through that, I guess, in terms of, You know, if you're a buyer, how do you create a win-win deal for these venture-backed businesses that have, you know, they built a great product, they have product market fit, they have tons of happy customers, they have an amazing team. How does that, like, what do you do?

A Here's what I did, and I don't think this approach is for everyone, but it kind of syncs with, with how I operate. I sat down with the founder, and I said, look, I may or may not buy your business, who the hell knows how these things go, and there's a million, you know, variables. I said, but let me explain to you how this process works. So whether you sell to me or someone else that you are taken care of, because as you know, all I care about are founders. So like, you know, I was basically saying, here's how to talk to your investors. Here's how to talk to your staff. Here's how to talk to everyone else. And here's what to expect for yourself, right? Again, most people aren't going to have that kind of advice because they're just trying to buy a business. They're not trying to advise a founder, but I use that to say, look, again, I don't care if you buy from me or not, or sell to me or not rather. Um, but I care that if you're going to exit this thing that you do it right. So most of those conversations guys were just me, um, having a conversation with a founder. Help them out, right? Now, in some of those conversations, the founder was in a tough spot. He or the cat founder typically was, right? One was they just ran out of money, right? There's no money in the bank, and the thing is going to wind down. That's always a category, obviously, right? Now, when that happens, I th…

AI assessment note: “Here's what I did, and I don't think this approach is for everyone”