How Does A Lack Of Funding Affect Your Company?

That meant we would have to take dramatic measures to ensure we could survive until we closed the next round of funding.

I walked over to Tina’s computer. It was clear she was right. I nodded my head and muttered, “Dammit.”

“This really sucks,” I said. “But I know we don’t have a choice.”

Advertising had been the engine for our revenue and customer growth, and now, we were cutting off our nose to spite our face. It would take a few months, but I knew our growth would stall out.

 

Your growth will slow because of a lack of funding.

 

“It feels like a fait accompli,” I said.

“What do you mean?” Tina asked me.

“Because of Donald Ventures screwing around with us, we’re not going to grow. That’s going to make it difficult for us to close the next round of funding. They’re forcing us to sell the company.

“Bastards!”

 

You’ll likely want to slow down or stop product introductions to save money.

 

“We can’t afford to tape out any more chips,” Tina said. “That’s the only way we’re going to make it.”

“Yeah, I’ve already talked about that with Jeroen (our VP Engineering),” I said. “We’re going to have the designers do all the work necessary to get the products ready to tape out, and we’ll just stop there.”

Tape outs, the procedure where a semiconductor company like ours sends the instructions of how to fabricate a chip to their manufacturing facility (fab), are critical to analog semiconductor company like ours.  This would save us hundreds of thousands of dollars, but it would impact our long term growth because new product introductions were the fuel for a company like ours. Instead, there would be no product introductions until we got more money.

“Man, this is painful,” I said.

 

You can’t pay your vendors or pay off your debt when you don’t have funding.

 

“Just as an FYI,” I said, “Barry (our board chairman) and I are speaking with SVB (Silicon Valley Bank) about renegotiating our loan tomorrow. Is that included in your analysis?”

“Yes, you can see it here,” Tina replied.

“I was hoping you missed that, so we’d have more money,” I smiled. “I’m pretty sure SVB will help us out because they’re startup friendly, but I know it’s going to cost us later.”

Indeed, SVB, did help us all the way through our fight with Donald Ventures. In fact, they ended up stepping in and saving the company at the last possible moment.

However, there was a price for their generosity, and that price was equity in the company. It was well worth it.

 

Your hiring will stop because of a lack of funding. In fact, you’ll likely have to lay off people.

 

“I’ve updated the financial model assuming that we have to survive for another three months (before funding closes),” Tina said.

“Let me take a look. Walk me through this,” I said.

“I have two scenarios. The first is we hold hiring flat. That gives about two months runway,” Tina said. “The second is we cut our staff by about 20 percent. This gives us over four months runway.”

I looked at the spreadsheets Tina had prepared. I felt sick all over. I knew what we were going to have to do.

“What’s your recommendation?” I asked her.

“I think we need to do the cuts,” Tina answered.

“I know,” I groaned. “Can you set up a meeting with the executive staff for later this afternoon? I’m going to call the board to let them know.”

“Okay,” Tina replied.

Of all the things you have to do as a CEO, laying off employees that are doing a good job is the worst thing humanly possible. It is all on you because, regardless of the reasons why you’re in this position, you have failed.

“We need to do this as quickly as possible,” I said. “When can you be ready with the final paychecks and paperwork?”

“Give me the list, and I can be ready in 48 hours,” Tina said.

“Thanks,” I replied.

 

You might need to cut salaries too.

 

We enacted all the actions Tina and I spoke about. It bought us more time, but that wasn’t good enough for Donald Ventures.

Even though we had four investors about to give us term sheets, “Raul”, Donald Ventures partner responsible for the investment, demanded that we shut the company down in a board meeting.

I suggested, because Tina and I had planned for this possibility, that we move every employee to minimum wage. This would buy us another six weeks of runway which was enough time to see if we could close our funding.

Raul agreed to our request.

 

You need to everything you can think of, and more, to extend your runway because it might be the difference between survival and failure.

 

Going to minimum wage bought us an extra six weeks of time. The downside was I expected to lose thirty percent of our team.

However, no one quit. It was the proudest moment of my career.

We received three term sheets because of the additional time we carved out. That’s why you have to dig deep when you’re low on funds.

 

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