The bitter taste of failure

Scripted, my first and largest business venture, was simultaneously a great success and a financial failure. 

The business today is thriving without me. We sold to Xenon Ventures, a growth-oriented private equity group that will continue the work my employees and investors dedicated many years and millions of dollars to build. 

For my investors, though, it was a failure. Everybody lost their money. I hate having to pay a parking ticket, and many of my investors lost 1,000X as much. Startup investing is a huge risk. Nobody forced them to invest. Nobody lied to them. Nobody meant to lose their money. 

Some startup deals yield 100X returns. Others go up in flames. This one did the latter. 

Someone close to Scripted told me that this financial outcome was the result of a weak management team and a weak board. When he said that, it stung. I don’t think of myself or anyone I hired as weak. We did, in retrospect, wait too long to make some decisions, but we did the best we could at the time. 

In thinking more about what he said, though, I can see his point. A stronger company with stronger leadership might have:

• Foreseen the endgame sooner and executed deeper layoffs right away even though it was harder because there was more uncertainty at the time about whether that was the right move. 
• Kept the culture alive even if some popular managers left the company, which was a really big concern. 
• Stood up to some board members, telling them that the best thing for the employees, early investors, and the company itself would not be the best thing for the later, larger investors. Angels don’t need to risk everything for the IPO dream. VCs are only in it for huge returns. Scripted’s leadership could have chosen a safer path with a lower likely outcome that would have been much better than what ultimately happened. 

How do I reconcile building a great business and losing everyone’s money? It’s pretty simple, really. By the time we’d built a profitable business, we’d burned through every dollar of equity and debt that we’d raised. When the principal payments on the debt came due, we didn’t have enough profit to pay it. We tried and failed to work around that problem with our debt and equity holders. The best solution we found was to sell the business in exchange for paying off the debt in full, leaving equity holders with nothing.

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In the days after I sent each of our 40-ish investors a personal note asking them to sign off on a deal that would yield zero compensation to them I learned the hardest lesson in my startup education. 

I learned there are two kinds of investors: the kind who can lose money and the kind who can’t. I learned that money is sensitive. It’s painful, powerful, hard, even for people with a lot of it. I learned it can make grown men lash out and cast blame as though this outcome was somehow in anybody’s best interest. It was not. We all lost. 

This was the dark shadow cast as the sun officially, finally set on my ten years at Scripted. 

I appreciate everyone who invested in my business. I really do. Regardless of amount, they put money down when the stakes were high and we needed it most. They believed in me, my co-founder, the vision and the team and product we had yet to build. It was a huge leap of faith and I don’t downplay that even as I share my feelings about this closing process. I can both respect and appreciate their support and acknowledge that some investors are more emotional about losing money than others. 

What happened in my final days as CEO, acting on behalf of my board and debtholders, doing what we ultimately needed to do in order to keep the business alive, was the worst of what the startup experience can bring. 

Nobody wants to be told their money is gone. Nobody wants to be the one telling someone that either. 

If you’re going to start a new venture or invest in one, you’d better have the guts to lose it all.