It was approximately a year ago when all trends were pointing towards tough times ahead for most businesses. If you were going into a fundraising mode at that time, in all likelihood you are in a new position at a new company now. If you were like most venture-backed companies, you reviewed the now infamous Sequoia Manifesto and hunkered down for a tough road ahead. Most economic pundits thought things would be rough through the better part of 2009 but Q4 2009 would be the start of a period of open checkbooks and increased budgets for the latest and greatest technology.
There are certainly some bright spots in Silicon Valley but many of us are still in hunker mode and the money we raised in 2007 or early 2008 is dwindling. We have pushed out milestone dates, reduced staff to the bare minimum and put off plans to find that shiny new office space.
It is time to step back and take a look at the business. Do you have enough cash to last another 9-12 months at least? Expectations are that Q1 2010 will be a period of heavy fundraising. Have you hit significant milestones in revenue and/or product development which will allow you to hit the fundraising trail? If the answer is no to the questions above it may be time to consider a 12 Step Program to winding down the business.
Every company and industry is different but there are certain steps that every serial entrepreneur needs to go through at some point in his/her career when the next great idea is not ready for prime time.
1. Admission-The success rate for technology start-ups is less than new Manhattan restaurants. Admit it, you gave it your best shot but maybe it is time to move on.
2. A greater Power- Most VCs/Board members have enough of a track record to know when it is time to cut your losses. The reality is that it is their money (on behalf of LPs) and if the Board decides it is time to turn off the lights you need to get on board that train.
3. Take care of the flock-is there enough cash to pay the employees including any accrued vacation and severance?
4. Make a list of all the vendors, secured and unsecured creditors the company owes money to.
5. Make direct amends to those people-sit down with each vendor/creditor and work out reasonable terms that each party can live with.
6. Make another list (arguably more important) of all the customers and other entities who owe the company money.
7. Turn over the care of the company to others-once the decision is made to wind down the business, bring in an unaffiliated third party to help with administering the process. A neutral viewpoint is always better. Reserve enough cash to pay your taxes, for the attorneys, accountants and any other vendors involved in the disposition of the company. Remember you are personally liable for payroll taxes.
8. Take inventory- Identify all tangible and intangible assets of the company. This should include leased equipment and a review of the outstanding terms of the lease agreements.
9. What is the real Intellectual Property of the company? Identify and realistically value the IP of the company.
10. Seek solace through prayer - OK, so not an actual checklist item in the wind-down process but if you are a religious person this is not a bad time to check in with the big guy.
11. Be prepared for the memories-The company is required by law to stay open for at least a year following termination of all employees. Delaware usually requires the shell company to stay in business for up to 3 years after close and records need to be maintained for 7 years.
12. Move on-This is probably the hardest part of the process. Whether you decided to shut the lights after 6 months or 6 years, this is your baby and the separation anxiety can be painful. Take some time but then find your next calling. Don’t be afraid to again sip from the chalice of innovation & opportunity.
In other regions of the country or world, it is considered a failure if you have to shut down a company and CEOs and Board members often feel shame and remorse. Fortunately, this is Silicon Valley, where shutting down a company is considered fiscally prudent and a badge of honor worn by many of the best known and most successful entrepreneurs. Make the right decision for your company, bring in the right resources to get through the process and move on to bigger and better successes.