August 25th, 2011 → 10:44 pm @ Norman
Several of the companies I’ve invested in have missed their sales targets and are chasing follow-on funding right now. The Boards have different problems and different approaches to their situation:
Company A has failed to get its product sold in the market, and lost the confidence of some investors. The Board still believes in the business’s future, and has explained to shareholders that they have a new strategy for entering the market. Still, the shares are being offered at a heavily discounted price, reflecting the company’s failure to date.
Company B also got into trouble in the market. In their case, some poor management, compounded by a large European partner going bankrupt left them out of cash and without a significant sale. The Board hesitated to ask investors for more money to back a relaunch. Instead, directors worked for many months to find a new way to leverage the company’s intellectual property… and removed the managers. They now have a new story for investors but have had to heavily discount the shares for the new round.
Company C lost both of the two main market opportunities they were chasing. In each case the deals were lost at the end of a long sales cycle. But, unlike Companies A and B, Company C had continued to develop an impressive sales pipeline, lodged extra patents, built a strong team, and achieved a surprisingly good brand position (for a startup with no sales!).
While Companies A and B are begging investors for more money, Company C is able to say, “Well, we missed our sales goal (and are hence out of cash), but look how strongly positioned we are!” Company C is delayed, but still on track, and investors will still be asked to fund at the rate of the previous round. (more…)