I’ve been on both sides of this event, and believe me, it is not fun. But it is, unfortunately, a virtually inextricable part of the entrepreneurial life, and what matters most (at least in the US, where entrepreneurship—and even valiant failure—is celebrated rather than reviled) is how you deal with it.
I am one of the more upbeat, positive-thinking people on the planet, but when my first venture-backed company went into Chapter 11 it was perhaps the most traumatic day of my life. I felt that I had personally failed (after what had, until that point, been a life of almost unbroken success), that despite my best efforts and a decade of non-stop work I had betrayed those who had had the faith to back my vision with their cash, and that I had let down my employees, my family and my customers. I was devastated, and felt that I would never again be able to either hold my head up, or rediscover the passion and self-confidence that are critical to success as an entrepreneur.
But time and perspective are restoratives, I had mostly great investors, and it turns out that nothing short of a direct nuclear blast can extinguish the flame of a true entrepreneur. I had dealt in complete good faith with my investors, who (having much more experience than I did) realized that this was part and parcel of the venture business, and who were aware of the extraordinary lengths I had gone to in an attempt to salvage their investments, if not the company. They were extremely supportive, and except for one bad apple, I am still honored to count all of them as friends (indeed, this happened over 15 years ago, and I’ve been separately emailing with two of them just this evening.) As a matter of fact, some of them went on to invest in later companies of mine.
On the other side of the table, as an investor I am now well aware of just how risky this seed/angel/venture world is. Over the past decade literally dozens of my portfolio companies have bitten the dust, losing all of their investors’ money. In every case, the critical factor was how the entrepreneur dealt with everything going on during what was (believe me, I know!) an extraordinarily trying period. When bad things happen, human nature is to either lash out against the Fates (and everyone else), or else stick your head in the sand and hope the bad things go away.
Unfortunately, neither of these is the right way to handle life, and I’ve seen the entire spectrum of responses. I’ve seen entrepreneurs simply wash their hands and walk away, leaving the clean-up work to lawyers and staff (that’s really bad). I’ve seen entrepreneurs try to be cute and take the assets to start another business on their own (that’s really bad). And then I’ve seen entrepreneurs who maintained full and frequent communication with their entire investor base throughout the process; busted their asses to exhaust every single potential option, no matter how far-fetched; did all the Right Things with regard to their staffs and customers; and made it very, very clear that they were doing everything within their power to salvage whatever they could for their investors.
These are the entrepreneurs who, in virtually every case, I would have absolutely no hesitation to back again, just as my great investors were willing to take another chance on me. Indeed, that’s one of the reasons I agreed to host the web series Second Chance, when Sprint and MSN asked me to do it. The full six episode series is viewable on YouTube, and here’s the trailer:
*original post can be found on Quora @ : http://www.quora.com/David-S-Rose/answers *