A few weeks ago we got through the most stressful challenge yet. We took in investors and raised some much needed cash. The round ended incredibly well. All those on board truly believe what we are doing. Even so, cutting off a chunk of your developing company is very difficult. (The pic above is of our office before everyone gets in. So peaceful!)
There’s a old saying that really rings true here; you can either have part of something, or all of nothing. I’d love to be able to tell the story that after investing our savings we were able to grow QP by reinvesting our revenue. Successful companies that were build that way are incredible and exceedingly rare. They are like cash flow unicorns. That’s not us. It took more. We put in everything we had and we rode that until all accounts were dry and all credit cards were loaded. We were (and still are) incredibly scrappy. The thing is, creating our popcorn doesn’t come cheap. We would have had all of nothing.
The cash crunch is just the reality that comes with making something and selling it. You buy a bunch of stuff and then slowly sell it. While it’s still selling you need to pay for more stuff, but this time you need twice as much. Cash goes out in huge chunks and trickles back in. I can’t even begin to fathom how many incredible companies and products have gone under because they couldn’t span the cash gorge. We were bailed out a few times. We were lucky.
Selling a chunk of your very young company goes something like this. You pin a value on your company. You do everything you can to base that number on logic, but it’s mostly made of pixy dust. You slip out of your day job to have a ton of cofee shop conversations with angel investors. Each one is the result of a circuitous connection to someone you met through happenstance. You do everything to get them to see what you see. Some conversations end because they can’t see it. Others end because the angel isn’t an angel, and you are wise enough to walk away. With a good team, a good product, and luck, you find people who share you vision and want to help you make it real.
I know this post is becoming terribly specific and technical, but this was a major hurdle for us. I need to share some of the things we learned:
- Find five people with experience and ask them everything at every step. You will get different answers, but that’s why we went with five and not two.
- The value of your company is what investors are willing to pay. It’s that simple.
- Elevator pitches are silly. Get good at really telling a story.
- You matter more than the idea.
- Find a good lawyer who does this kind of thing all the time. One or two lines in a deal doc can result in disaster down the road. It happens all the time.
- Learn the language. You need to understand what people are asking for. In the moment, on the spot, you need to know what’s acceptable and what’s egregious.
- Read Brad Feld’s blog. All of it.
- The right investors are ones that you would want involved even if you didn’t need money.
- If it feels bad, walk away. Kristy is very good at this part…
I know the tone here is a little serious, but that’s what this is. It’s scary stuff. Missteps are not an option. I can say, however, that we had a storybook experience. We waited too long and things got hairy, but we are in such good company now. I consider every one of our investors a friend. They believe in what we are doing. That’s why they invested. In terms of cash flow, we still have to be scrappy and efficient. We raised what we needed, and not more. For the time being we can focus on making good food and making it available to more people. The ability to focus on our core mission is a such a wonderful luxury.
P.S. Nebraska is still parched. Please cross you fingers, toes, and eyes. Do a rain dance. Say a prayer. It’s going to be a tough year for those farmers. Time will tell how it will hit us…