Thoughts on startups by investors that
fund them & entrepreneurs that run them

(Don’t) Take the Money and Run

For a true entrepreneur, shutting down a failing venture is the single hardest thing you will ever do. It goes against every fiber of your No. 1 core belief, best articulated by Winston Churchill: “Never, never, never give up!”

It’s this dedication, perseverance and commitment that defines every great entrepreneur, and one of the most important qualities that every early stage investor looks for when making a funding decision. It’s the stuff of legend, immortalized in the poem “If” by Rudyard Kipling:

“If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: ‘Hold on!’”

It’s the ability to pivot instead of crashing. It’s surviving the fires of Hell to temper the entrepreneurial steel. It’s Amazon losing 95% of its value, but hanging on despite the tremendous loss.  In 2015, Amazon had a market capitalization of more than $121 billion.

And yet, with nearly one-third of venture-backed businesses — and more than one-half of angel-backed businesses — failing within just a few years, there comes a time along the entrepreneurial path when the right thing to do is to read the writing on the wall, and wind down the enterprise.

I’ve been on both sides of this event, and believe me, it’s not fun. But it is, unfortunately, a virtually inextricable part of the entrepreneurial life, and what matters most (at least in the U.S., where entrepreneurship — and even valiant failure — is celebrated rather than reviled) is how you deal with it.

The first thing to understand is just how significantly your options change once you take even a penny of outside investment. Up until then, your life is your own, your responsibilities are to yourself (and your family), and it’s up to you to decide if the game is worth the candle. If things are looking rocky, and there isn’t a clear path forward, it is completely your prerogative to pack it in and move on to something else…including taking an undoubtedly long-overdue vacation.

But the minute you have investors, your life and decisions are no longer your own. Instead, you have a legal and moral responsibility to other people who have entrusted you with their money, based on their belief that you will stick it out until the very end trying to salvage their investment. As I tell entrepreneurs during my pitch-coaching classes on fundraising, “once you have taken in a penny of my money, you have given up the freedom to walk away. Instead, I expect you to stay with the venture until the very, very end — until I drag it out of your cold, dead fingers!”

Investors are well aware of just how risky the seed/angel/venture world is. Over the past decade literally dozens of my portfolio companies have bitten the dust, losing all of their investors’ money (and whether or not they will admit it, this is also true of virtually every other angel investor and venture capitalist I know.) In every single case, however, the critical factor for me was not whether the company failed, but rather how the entrepreneur dealt with everything going on during what was an extraordinarily trying period. When bad things happen, we either blame the Fates (and everyone else), or else stick your head in the sand and hope the bad situation resolves itself.

Unfortunately, neither of these reactions are constructive — and I’ve seen the entire spectrum of responses. I’ve seen entrepreneurs simply wash their hands and walk away, leaving the clean-up work to lawyers and staff (that’s bad). I’ve seen entrepreneurs try to be cute and take the remaining assets to start another business on their own (that’s really bad).

And then I’ve seen entrepreneurs who maintained full and frequent communication with their entire investor base throughout the process; busted their butts to exhaust every single potential option, no matter how far-fetched; did all the right things regarding their staff and customers; and made it very, very clear that they were doing everything within their power to salvage whatever they could for their investors.

These are the entrepreneurs who, in virtually every case, I would have absolutely no hesitation to back again.

*Original post can be found on Wall Street Journal Blogs @ *

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Written by David S. Rose

user David S. Rose Founder and CEO,

David has been described as "the Father of Angel Investing in New York" by Crain's New York Business, & a "world conquering entrepreneur" by BusinessWeek. He is a serial entrepreneur & Inc 500 CEO who chairs New York Angels, one of the most active angel investment groups. David is also CEO of Gust.

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