Business Failure

Your Startup Is Dying -- Now What?

At a certain point, your best move is to admit defeat and move on.
Your Startup Is Dying -- Now What?
Image credit: Thomas Barwick | Getty Images
Guest Writer
Managing Partner, HOF Capital
3 min read
Opinions expressed by Entrepreneur contributors are their own.

Mann tracht, un Gott lacht ("Man plans, and God laughs").

We hope for the best, but are forced to plan for the worst. Almost all VCs will have companies that fail. The CEO comes to us. She has three months of cash left. Existing investors have said they'd be glad to invest ... if she gets a new lead investor, which six months of searching has failed to generate. Employees are spending a lot of time out of the office and in conference rooms, with their monitors angled so that you can't see them on AngelList's job board.

Related: They Were Acquired ... and Then the Buyer Went Bust

What do you do now?

At a certain point, your best move is to admit defeat and move on. A quick, clean death or acqui-hire is far better than a slow, painful, litigious death.

Of course, we all hope that you raise enough money and/or get to profitability to keep the business alive. That said, I wanted to share a few thoughts on how to prepare for the possibility that you'll have to shut down the company.

Don't fight to the bitter end.

It's expensive to shut down. You'll have to pay for severance, make sure you're current on taxes, pay someone to sell off your furniture, etc. It's much better to calculate the total cost of shutting down, publicize it to the board and then declare defeat once your cash in bank hits that level.

Related: 6 Lessons I Wish I'd Known Before My Business Failed

Don't surprise people.

Keep your investors in the loop on your current cash situation. A CEO friend observes, "Investors love good news, and can handle bad news, but will not tolerate surprises. Never forget, on their best day any group of investors is a step away from a lynch mob ... and that's their best day."

Consider a banker.

Have you hired a banker to try to auction the company? If you can't find a banker that will buy such an early stage company (which is likely), I suggest at least mail directly all the likely acquirers with whom you have an existing relationship. You have nothing to lose. Since your early days, hopefully you kept a list of likely acquirers and made an effort to get to know them. It's dramatically more likely that a certain company will acquire you if they've been tracking your progress for some time.

Related: 18 Brutal Business Failures by Wildly Successful Entrepreneurs (Infographic)

Try all exit options.

If you haven't already, I suggest listing on ExitRound, a zero-fixed-cost platform for increasing your odds of finding a likely buyer. If you have some meaningful revenues, you can also list yourself on one of the various companies that assist in the M&A process for later-stage companies, such as Axial, BankerBay, Intralinks Deal Nexus and MergerMarket.

Outplace your team.

If you do have a large or a 100 percent round of layoffs, I suggest mailing a set of the resumes to relevant CEOs and recruiters you know. In your cover note, make sure to emphasize that you endorse the people you are sending, and are glad to provide references for any of them.

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