WWYD? Built a company valued at $1B and may walk away with nothing

> My #1 priority is to get the financing closed for the business.

> The strategy I would want to run as CEO is likely not something my COO or board will want to get behind

I'd argue that your #1 priority as a CEO is building alignment between all stakeholders -yourself included- on the direction to move forward; everything else is downstream from that. If you close financing at terms you're not aligned with, with boardmembers who are signing up for a strat you are not aligned with, the business will be pushed into different directions, and shatter at these cross-forces.

I've seen this before, and the deterministic outcome from it is you parting ways with the company in 6-12 months' time, at which point it will be in a significantly worse shape / position than it is now.

Presently you have some level of movement freedom. I'd start by sketching out a strategy you think have a high expected value X probability of working, and a roadmap to getting there. I'd look for investors who are okay with signing up for that plan, at valuation that reflects the business's true value given that strategy is successful. Get people aligned with that goal, and execute on that.

The second issue, "What's in it for me?" flows downstream from above. If your own expected value for a successful outcome is no longer motivating for you, your incentives are at odds with the company. To align these, one useful question is: "Okay, you fire me today, find a competent CEO. What would that CEO ask for to drive this?". Sell your board on this question, and take that specific package -with the advantage of the company being that they don't have to go through the C-level search process. Operationally, this can include: a bonus for achieving milestones on the strategic roadmap, and market-level salary.

In short, I'd start with alignment. Everything else -including what's in it for you- flows from there.

Based on your description I did a search on public companies with roughly the same characteristics on Finviz and returned these 9:

FTCI SRT RBT ZEPP VIAO FEIM EMKR FKWL AAOI

The challenge is that you’ve invested $250M to produce a business that sounds like it’s worth $100+M today (if $30M in debt is going to wipe out half your equity).

As much as the ride has been thrilling and you’ve worked your tail off, from a performance perspective, investors look at the $250M in and $100ish M in current value and say “meh, not that great an entrepreneur, turns every buck I give them into fifty cents.”

The reason your COO and Board are skeptical of your plan is that your actual business that you have has proven to be low margin, which means you produce relatively low value over your cost of goods for your customers. So a fantastical plan where in the future you’ll provide LOTS of value to your customers seems speculative at best, foolhardy at worst.

From a personal perspective, your value as an entrepreneur / founder, will never again go up at your current company, only down. There is no scenario in which five years from now people are more impressed with what you’ve built than they are today.

Your personal best outcome, IMHO, is to sell as much as you can and take the personal exit. Hand the keys over to the COO for them to do the grinding turnaround over next five years. Take six months to recharge and come back into the market with something new. You’ll be able to raise at a higher valuation for a new business, and actually get paid a higher comp.

The simple fact is that 10 years in you need to become profitable or there’s no business. Todays market isn’t going to look kindly on a loss making startup of that vintage. The $1B valuation is long gone and realistically the company is probably worth less than the cash raised to date. As you’re finding there are folks that will provide ongoing funding, but they’re going to charge a price consistent with the risk they’re taking at this point.

Not trying to sound cold but that’s the reality of the market now. Probably no consolation, but there are a lot of startups in this position now. If you have IP that’s valuable you could explore an M&A exit. That typically won’t end in a giant cheque but will make folks whole and provide a graceful exit.

> We will end the year at $130M in annual revenues and burning ~$925K/month, we are a low gross profit margin business ~15-20%

The critical question is "what is your path to profitability?" You have seemingly a positive gross margin but negative net margin? What does the gap consist of?

> The strategy I would want to run as CEO is likely not something my COO or board will want to get behind and frankly I don't know if I have the energy to do it myself. It would require 24-36 months to transition the business to the new world while watching old revenue decline and waiting for new higher margin revenue build up in parallel to offset the declining revenues in the core business.

Are you familiar with the Nokia "burning platform" memo?

You have roughly four choices:

1) make the old pre-pivot business work (have positive net margin)

2) make the new post-pivot business work

3) raise more money through investor storytime, which is going to require a good answer to #1 or #2 and as you say carries risk of being diluted out

4) give up

5) a miracle occurs

I can feel that you're very tempted to do #4, which makes #3 harder as a very high level of self-belief is necessary. It seems there are problems with #2, and #1 hasn't made it after all this time.

Perhaps this is the time to get a bit confrontational with people to insist they get behind either #1 or #2 100%.

> maybe for the first time in 10 years I'm asking the question "What's in it for me?"

Bit late for that, sadly. "Selfless CEO" is just self-exploitation.

Using a throw away account.

I can feel with you.

Your story sound similar to mine, only that I could cash out some of my shares when a PE company took over, so I don't lose everything. I had to roll over some of my shares though, and these are close to worthless now. It's still painful getting more and more diluted in extreme down rounds, as business is running out of cash and debt is too high.

From my experience, it's inevitable that you will get diluted, you can't change that. It also does not matter what you have done for the business before, the investor persons won't care. What matters is the now and the future.

So focus on the future. You should align your salary and package with that of the COO. Your new shares could also have similar conditions as the new investor will etc. Discuss it with your current investors and the new ones. They don't want to write off their investment too, and certainly want to keep you on board?

I don't understand your fear that they will fire you? You will still keep your shares, and are free to do something new (and will probably earn much more).

You can only change the future. You seem to be a technical person (nothing wrong about that, I'm too :-)), a business person would have negotiated this a long time ago already, and multiple times.

If you have <6mo of runway at current cash levels, your first order of business would be to cut costs to get to breakeven in the next 60-90 days. That means a target of cutting out annual costs of around $11-12M broken down to around $4M+ cost reduction within the next 60-90 days.

This could mean

  - headcount reduction,
  - facility lease terminations, 
  - redundant vendor contract terminations (eg: if you have 3 suppliers reduce to 2 asking them to bid for services or use any volume discounts to work in company's favor through the consolidation), 
  - shutdown any loss-making service lines (use these to guide the previous points)
  - outsourcing/offshoring to leverage lower product/service-line costs, 
  - price increases,
  - firing loss-making customers,
  - techstack optimization

You can run targeted commission-based sales over the next 60-90 days that brings deals that are PAT-accretive. I am assuming sales closed this quarter starts contributing positively within the subsequent one or two quarters.

My personal advice is to focus on getting to breakeven ASAP as that gives you additional degrees of freedom for you to execute your strategy.

Good luck.

WWID?

I know nothing of this life path, but I think I would up my own salary to what I am worth, if I feel it is too low. What is your role? CEO?

Say you doubled your salary to $350k, then over 2 years that is $350k, or 10 days burn. Doubt anyone will notice.

Probably need to downsize a bit to get costs under control too?

Yes this sounds like an asshole move but I think it is an asshole "relative" to the very humble choices you have made so far, so a reversion to the mean, and I think the right thing to do.

Take care of yourself and your health especially.

> The strategy I would want to run as CEO is likely not something my COO or board will want to get behind and frankly I don't know if I have the energy to do it myself.

Why would you want to keep a COO that isn't aligned with you?

> Still negotiating, but will likely have to give up board control

Then don't take it. You have control. Tell the investors / board this isn't a viable option. We all want to survive.

As others have said - cut cost or look for different types of financing where you'll do fine. If the investors really disagree they can get nothing out of it too so everyone needs to compromise.

> But I do understand that it is my fiduciary obligation as the Founder/CEO

As 1 of the largest shareholders it's your "fiduciary obligation" to make yourself happy. Why do you discount the shareholder side of you?

A few people have said the same thing, why not bring costs down.

130M in ARR and you can't save 1M a month in burn? what is holding you back from letting go ~60 people and/or trimming other costs?

Raising on those terms, that dilution and no board seat, I would not do it.

The safest way would probably to find a way saving ~10% in cost through all means necessary while keeping revenues stable. If that's somehow possible, you stop burning cash and are not reliant on external investors anymore.

Maybe ask your employees? I'm sure they also don't want someone to come in and take control. And quite often, employees can think of creative ways to save money that the CEO doesn't know of.

As you describe your situation, your COO would be the perfect candidate to find that money.

You need to buy time. Right now your biggest priority is to stop losing money. Can you cut expenses or staff? Can you raise prices without losing all your customers? Can you get more customers? You need to act as if financing will not be available to you, because in honesty it might not be.

If you don't figure this out within the next few weeks, you will find yourself without any options and will need to either close the company or take whatever lowball offer you can get.

How much of your margins are COGS? How competitive is this industry? Do you sell big-ticket items to a small group of customers or the opposite? Is there room to raise prices a bit? If you told your customers that you're losing a million dollars every month and you might shut down soon, would they easily find alternatives or would they be in a bind themselves?

Why are you really raising money -- to make capital investments that will actually make the company profitable (operating basis)? If the first $187 million didn't do the trick, how & why will this extra $30 million do it? Or are you raising money just to keep the hamster wheel going a little longer?

Are your revenues growing? Or flatlined? 925k/month loss is an awfully specific number, is that better or worse than a year ago, or 6 months ago?

> We will end the year at $130M in annual revenues and burning ~$925K/month

Sorry, I am confused. Is there a definition of "burning" that's different from "expense"? Cause based on those numbers, you guys are making a sound profit...

What exactly is the problem? If you walk away after raising the additional funding (and luckily the current market logic still says companies with no profit can still be worth billions), you'll end up with a still-substantial part of the company, which will be run by people who will have vested interest in making some sort of exit. Sounds like a win-win?

I've been in a very similar position.

Spent 5 years founding a startup that the vast majority of people here probably know. We raised healthy eight figures and failed to pivot to profitability before markets & investor sentiment turned on us. At the end of the road, we faced a critical decision: 1) Do a deep cut in team & revenue to get to profitability. Restart healthy growth with no clear path to exceeding our liquid pref stack 2) Fire sale.

We chose to do a fire sale that wiped out common shareholders. In hindsight, a fire sale was the right choice. It allowed me time to recover, and then get back into a new business that has thrived. More importantly, it gave me the necessary space to emotionally recover from a long journey, take a step back to learn from my mistakes, and healthily reset.

My advice to you:

- Take a deep breath. It might seem like the darkness will last forever, but the sun will rise again. However this fucked up situation turns out, you're going to be OK. Eventually, you're going to laugh at the pain you're experiencing now.

- Accept that everything in the past is a sunk cost, and your equity is worth 0. Yes, it sucks that you spent 10 years on a fat zero. But, you need to remain objective, and the facts are clear. The fair value of common shares today is 0, and any value creation is a function of future work, not past work.

- Appreciate the opportunity cost of your time. I don't know you personally, but if you're the type who will just start a new business after a long break, I'm willing to bet the expected value of your time is at least $1m/yr.

- Try to negotiate compensation with your board that clearly exceeds your opportunity cost. And, be generous in evaluating your opportunity cost - chances are you're underestimating your future self at this time.

- If you're unable to negotiate this package, quit.

- Get a founder coach if you don't have one yet. Someone who's been in the trenches and can relate with your situation. I can connect you with mine who is amazing, just reply here.

Best of luck friend, wish I could spend more time on this response.

You have to talk to your current investors about this. They do not want to lose all their money and you are in charge. So they want you to be incentivised to take the best option for them. Getting your incentives aligned with theirs is in their best interest.

It's unclear to me why you're taking more funding on such bad terms.

You have 130M ARR and are only ~10% short of break-even at ~1M burn/mo, just tighten up the business and clean house a bit?

Dilute your cofounder to basically nothing and get yourself some preferreds as part of the debt raise.

It sucks but they’re no longer contributing and are a massive drag on the cap table.

I’d also get some generous equity for the COO if you’re going to hand it off to them. Tie it to the performance incentives you know the company needs to hit to be a success.

The company definitely ain't valued 1B any more, that's your problem. You have taken more money in than the company is worth.

Just be brutally honest with yourself and do the right thing, what ever that intrinsically means for you.

Even if you don't believe in god, you have an unconscious that keeps a track of these things so act in a way where you might get/deserve chance to rebuild yourself after all of it.

P.S. I've been in a similar situation (smaller level) and the way I handled myself resulted in a downward spiral for years, never truly trusting myself to fully commit to anything while also not fully giving up. Basically running around in circles, each time losing a little bit of heart/spirit.

Reading posts like these I think my family is right and I am wrong. Every time my family business faces financial turbulence, I question why does the business not take equity funding. And every time I get an emphatic No as an answer. The reason being that this not only loses control of the business and hence freedom, but it also increases stress. It is better to grow slow and steady. There will be bumps in the road, but at least it will not add unnecessary stress to the already stressful task of running a business.

Is it possible to cut costs in an extream way to make sure you're burning 0 per month? it is okay to let growth slow down or perhaps you may even lose some percent of your current revenue. It seems to be better than the alternative options. Perhaps get rid of the COO and other high fixed costs and hire later when you're in a better financial position

Thinking of what I would have needed to hear in your place:

- By your burnrate, it sounds like you have about 5M left. First give yourself 500k safety bonus, so you have some piece if mind to think clearly. 10% doesn't matter negatively, but it make a huge difference since it sounds like you're the heart of the company. Check with your personal lawyer.

- Reduce costs ASAP, and do that dramatically. Fire your COO and anyone that isn't making money or is absolutely required to mainting money-making contracts.

- Take a few days off and do something fun and social with close friends. I am not joking, you need to literally ask your friends to cheer you up. This should temporarily patch the burnout and help you operate. Just don't drink too much.

Know that you've paid your fiduciary duties in advance already in all those ramen days, you deserve at least FMV = 200k * 10 years - what you got paid.

Taking $30m that will wipe out most of your stake, and still not carry the business through to profitability seems like a tough road to go down. You've said you're not sure you have the energy, and I expect that your energy will go down even further with a much lower ownership stake.

If that's the case then I would be looking for any option to not do that which seems to be either selling asap or cutting your burn rate drastically. You have 6 months of runway. Can you cut your burn rate to 0, or 2/3 or something that will give you a meaningful runway without raising the additional $30m?

It may also be a case of walking away. You own a good chunk of the business and if you think the board is going to fire you anyway, perhaps it's better to let someone else take the CEO job, you keep your stake and do something else?

What kind of business are you in? Quite hard to understand without hearing what kind of thing you're doing.

Sounds like you want to buy yourself some runway, and the only way to do that is to let go of staff. Alternatively offer people equity-for-salary, because your equity ought to be cheap now.

Sounds pretty stressful, don't beat yourself up over it. Wanting to do well for the investors is good, but everyone knows about the principal-agent problem, and they could have aligned your incentives better. It's exactly this case they should have thought about, what do I do if the founder is in a position where they want to drop everything, blowing up the business, because they won't get anything out of it?

The reason why you are going to get decimated is the continue losses. You need to be brutal and stop the losses or you will be replaced by someone who will. This the core issue, and everything else is secondary. A ton of companies are in this situation where losses were normalized because we were in a bubbly VC environment and now we are in a brutal one.

So figure out how to be profitable in the near term. It may be quite radical and hard to make these decisions, but this is basically where a lot of companies are. The ones that can be profitable and self-sustaining in the near term, even if you become a lot smaller, are the ones that will make it.

> We will end the year at $130M in annual revenues and burning ~$925K/month

so your expenses are $141M/year.

I am not in your shoes, but if I were, I would start with cost cutting:

- easiest, fastest and unfortunate one - layoffs

- cost cutting on marketing side, probably some clicks you get are fake anyways

- look into negotiating with vendors, they are interested in not losing you as a customer.

- if you are an engineering first company, I think you can save some cost by optimizing your stack a little bit (depending on how big is your eng infra), e.g. less EC2 instances, less monitoring for non-important things,..

Good luck

cut the majority of management, COO etc that are not necessary in generating revenue.

find ways to become cash flow positive yesterday. dilute expected stock based compensation for employees and for you. if all fails - have the business pay you an exit fee for not damaging the business.

unfortunately, a business with such bad numbers wouldn't have survived without the cheap money.

even with low margins such as 20% profits - it's still a decent bootstrapped business but ya'll got addicted to the cheap cash

What is the product, did the market change for it the past few years? Is it growing organically? Is it B2B, B2C? The decisions seem so detached to whether people want whatever it is the company is selling. If honest it doesn't seem like the focus on what you want to do is right. It is one thing to put work in but that is not entirely causal to whether it is successful.

At its core the business fundamentals aren't great. However 130MM in revenue annually could mean there is something there.

I agree the number one thing to figure out is strategy. 24 to 36 months is a non starter in this environment. The company will die before you manage to pivot.

Figure out how to make the company sustainable and pitch that vision.

You ask "WWYD?". I would secure the funding and then leave immediately.

But my opinion is irrelevant. What you should do depends on what's important to you. Money, health, family, career, status, mission etc. You have achieved something incredible and learned more than you can probably appreciate right now. I wish you well.

You’ve bootstrapped before - could you summon the personal strength to do it again? Reduce headcount, cut costs relentlessly, grow margins, and prepare for a sale in 3-5 years? I.e. don’t try to pivot and grow your way to success.

It’ll be tough, but tougher than selling with nothing to show for it?

Not sure why'd you get a COO with big fat compensation with only 6 months runway left

You can look into alternative funding venues like Crowd Funding, but given the market conditions looks like you should aim at becoming cash flow neutral at least within a short period of time

I would cut costs aggressively to remove the need for additional financing. That is your ticket to freedom and what is best long-term for the company. As CEO you have full rights & responsibility to do this, even if it will wreak havoc in the short term.

Are deep cost cuts an option? What meaningful changes to the business can be made?

The financing round doesn’t sound great and won’t last, just buying some time.

With only 5m in the bank, 12m burn and 130m in revenues, is there any way to optimize your cash flow? If you can get a 180 day line of credit from your suppliers your runway will look a lot better. Your suppliers are the only ones who care if you go out of business, and if you’ve worked with them for a long time they hopefully like you.

And you have to cut costs too. It’s not fun but you have to do it. Renegotiate every contract, and just stop paying for things that you don’t 100% need.

B2B or B2C?

Is product actually good (i.e. your customers love it)?

Is it a want (vitamin) or a need (painkiller)?

If B2B, does it save money or generate money?

Im in NYC right now and a specialist at cost reduction, growth, and a couple other things. Happy to swing by, sign an nda, and tell you how to fix this. (I currently advise 3 unicorns when they need me for various functions)

Blew through $250M including a $300K/yr COO running an unprofitable knon growing business. and asking for free management consulting help on a pseudonymous forum. I guess that's a way to cut costs.

Any guess for the company?

qq: was it not possible to take money off the table? AFAIK, it was common 2020-2021 that even series B raises let founders take some money off.

I'd go Jack Kerouac on everyone's ass.

So basically I'm responding to this ask, what would you do by Susan Wise, 27% owner of an unmentioned startup, a company worth over one billion dollars. Anyway, so yeah. Let's go.

So yeah, like she's really at the end of her tether. She's really desperate. She's really gone. Obviously, what she should do depends on what she really wants. First, I'll be kind of humorous and I'll say, what would I do? Well, I don't think I'm particularly smart, clever, or sensible. So what I would probably do is just be like, I'm starting to feel burned out. Fuck this. I'm gonna walk away right now with as much as possible. And I do whatever I could to do that.

But you know, that's probably not you. I'd be like, I'm getting out, taking this golden parachute, going somewhere else and taking the me time, you know, take care of myself. And I'm walking away with enough money that I can start again and do something else. That's what I would do, right? But I think you're probably really asking for ideas about what you should do.

And what you should do, I guess, depends on what you really want. Sounds like you really don't know what you want to do. And you're really stressed out at the end of your tether. Like at the point of collapse, and I really feel for you and I just, you know, I hope everything works out okay for you. I hope you take care of yourself and really make it through this.

Because I know it seems like, you know, the possibility of maybe you won't even make it through this, you know, it seems so scary. Probably just I'll say one like sensible thing here. And then I'll just launch into sort of my analysis for you. The sensible thing is you should be talking to an accountant and a lawyer and just going, how do I maximize what I want? So let's just say, how do I maximize my money and get out as quickly as possible? Like ideally, I want to walk away with 27% of a billion and walk away tomorrow. You know, say, let's just say that's some kind of line in the sand type of benchmark thing and talk to an accountant or a lawyer and see, get me as close to that as possible. What should I do? You know what I mean? So I think that's the sensible thing to say.

Now let's move on to my analysis for you. And you may judge, I have absolutely no qualifications to help you in this regard and that's fine. I'm just trying to help. So thank you and good luck anyway. I'm going to assume your trajectory was "10 years" in what follows. And here's what I think. You really poured your heart and soul into this business and maybe you had to pivot for halfway through and things looked really great for the first couple of years and then you realized you had to change things and things haven't gone as you expected, but they've still been good, but sort of feels like things have got out of your control in some sense.

And maybe you feel this momentum, this job, whatever has been too big for you, but you felt like that for maybe more than the last six years or whatever. And so I guess a constant kind of fear has been part of your daily experience there. And now on some level, you're probably just realizing you can't do this anymore. You don't wanna do this anymore. There's other things important in your life. And maybe you don't know what they are necessarily, but you know there's something there. You care about it, but not like you used to.

Because basically after the first three years, you realize even if you didn't admit it to yourself, that things were not gonna go the way you really wanted them to go with this. You had a clear vision and a dream and reality disappointed you essentially. Maybe you feel your own skill or whatever disappointed you, but at the end of the day, you've been running on the realization, on the fumes of the realization that things didn't go as you really envisioned for this. And too bad, that sucks and that hurts. And there hasn't been any resolution to that kind of pain essentially. Lots of small wins, but nothing has kind of captured your enthusiasm for this business like it did in the first three, three and a half years. After which you've basically been on a trajectory leading you I guess to where you are now.

So this has been a long time coming. Perhaps what you're about to do will be easier, realizing that this is not just being irrational, spur of the moment. It may not share the logic of other people or even of the business as a whole, but for you, the trajectory you're on has its own internal logic that personally makes sense to you when you look at it and understand your journey. And in effect, grappling with the minor choice you have to try to get as much as you want, as much as you could is sort of harkening back to that already shattered dream of the first three years. And if you look at it, you'll know that.

But what realization you've come to over the last six years hasn't all been bad. There is a silver lining and that silver lining is that you've realized that, you know what, even though you feel you haven't sort of accepted this new path because in some ways you're harkening back and perfectly find out mixed feelings, of course, it seems a larger part of you has realized that what you really want is you want to leave something behind. You want to do something best for the business. And so in that sense, you don't really care about the money. As strange as that sounds and irrational as that sounds compared to the vision you had for the first three years of this kind of super rich, incredible business, not to say that by some standards you have not achieved a measure, even great measure of success, yet you know it is disappointed those first three years' vision.

All I'm saying is that like, strange as it sounds, you've already kind of realized and accepted that you don't care about the money so much. You just want to do something good for this business. So you will not, if you try to grab as much as you want now, you know, do the economically rational thing. And maybe there are some actors in your life who don't share your values or your trajectory and they're pushing you or thinking that you should do that or whatever, but their goals are not your goals and you must live and live with the consequences of your own decisions.

Anyway, so as strange as it sounds compared to that earlier version of you in the first three years, you don't care about the money now, right? So I suppose the coming to a close of this chapter is really just a final acceptance and realization of all that you've lost, you know, of giving up that dream for this and of accepting that, you know, the trajectory has changed, not a terrible trajectory, but it wasn't what you originally expected, but your passion is to do something for this business, to leave something good behind. You don't care about what you get for yourself above a certain kind of minimum level of fairness, but that level is completely removed from and separate from and from a different source place of values than the version of you in the first three years.

And maybe one reason you're confused and unsure right now is because you're trying to balance between these two things, coming to an end of this chapter, you're reflecting on your original vision and version of yourself and the company and maybe sort of reflecting on, but also resisting the present reality version of that in some sense, right? I'm sure you have multiple layers of thoughts and feelings and so it's natural that there would be some in contradiction with each other. So it's no surprise that it's a difficult and somewhat confusing kind of time and you're unsure right now what to do. But there's more than that. It's more than just do what's good for the business as a general way, which of course, in the implementation of that policy, you will have many ideas about how that should be executed.

... continued below ...

> Today, my base salary is $175K, no bonus, no stock refresh since the founder grant, fully vested stock, no severance, no indemnification. (Mainly because I just haven't asked for new comp b.c company is in a difficult spot) - In comparison, I hired a critical new C-Suite exec (COO) and gave her $285K/year

Here is your problem.

Some founders milk company directly on bonuses and pay, there is no "grand exit" when they go public. I think you may be subconsciously aware of that, maybe there is some hidden regret or self-hate etc... Continuing with this frugality may not be way forward.

I would suggest:

- get out of NY, some nice environment near sea or forest, work remotely

- prepare for your exit. Move out of NY to minimize income tax etc..

- can you actually become CEO? If not, it is not your business anymore, not your problem

- find way to increase your take-home money. For start you could pay yourself for overtimes. Maybe if you move out of NY, you may need office there and so on...

- personal brand is worth quite a lot. Maybe there is way to use this startup to build your own.