I had a visit from an entrepreneur yesterday who was deliberating about whether to take on a CEO job at a venture-backed company or start a new company from scratch. The only problem was that the VC deal had some hair on it… $15MM of paid-in capital, nominal revenues, and just a few customers. I frequently see people in this situation and always give them the same feedback: run from a VC-fixer-upper as fast as you can.
A venture turn-around is a lot like remodeling a New York City apartment. My wife and I remodeled our apartment in 2012, and everything that could go wrong, did go wrong. Permits were delayed for months, demolition revealed wiring and pipes that changed our plans, our co-op board mandated new A/C units at an exorbitant cost, our upstairs neighbors sued because “vibrations” caused a family heirloom to break, Hurricane Sandy prevented the construction crew from coming to work for two months (in reality they took other jobs where they could make more money), and on and on and on. In the end our 6-8 week project took a year to complete, and it cost three times what our contractor quoted.
If you think this sounds bad, turning around a broken start-up is worse.
In the start-up world, three or four companies get funded at the same time to solve the same problem. If a company stumbles out of the gate, wanders aimlessly for two years, and spends all its investor’s money – it has already lost. There is no fixing it.
The only time I have seen a venture turn-around work is when the management team pivots the business into something entirely new. This is what I tell the prospective CEOs who come to my office. If you take over a broken deal, be prepared to start over and turn it into something else. At that point you have to evaluate whether it is easier to start a company with $15MM of liquidation preferences and a tired team, or start something from scratch.