Making Lemonade

At True Ventures, we base our investment decision heavily upon the working with the best entrepreneurs – entrepreneurs who travel the path of creating a startup, which is a lonely road.  We know that not every investment we make will yield an investment return, as it is an industry standard that 40% of venture-backed companies do not succeed,  but we expect the Founders that we back to try very hard and to give their best efforts.  Even though Infectious did not work from an investment standpoint, we loved working with Tim, and he exemplifies some of the best qualities that we look for in Founders.  It has been a pleasure to have him in our portfolio, and we were thrilled when he joined Fitbit as a VP.  Thanks, Tim!

In the fall of 2010, I sold my startup.  Unfortunately, this wasn’t a sale that involved high fives and multiples on investment.  It was a graceful wrap up, involving a sale of the company’s assets and closing things down.  Even though Infectious was nearing profitability,  we were running it on a shoestring, and it was hard to see a bright future.  Unwinding a startup is never fun.  For other entrepreneurs out there, I hope your future involves popping champagne corks and lucrative exits.  But if that isn’t in the cards, it is worth the time to unwind things gracefully.  Here are some of the lessons I learned in my attempt to do so.

Take the Bull By the Horns

At the beginning of 2010, sales were growing slowly for Infectious, and the market was becoming intensely crowded.  While we had money in the bank, it was pretty clear that it did not make sense to continue to invest in the venture. This led to very open, frank, and constructive conversations with my investors.  Making this decision proactively allowed me to focus my energy on finding the best possible solution, rather than throwing hail marys and leaving no options but a hard shut down.

Recognize It Is an Emotional Process

Like just about any other startup out there, Infectious was a labor of love.  Years of time, passion, and energy went into getting it off the ground.  This ending for Infectious certainly wasn’t what I wanted, and it was huge personal loss that I had to come to terms with. I don’t think I realized just how big a deal this was, until it was all over.  In retrospect, I should have carved out a little more time to mourn Infectious before starting the shut down process.

Be Honest

With yourself.  With your employees.  With your investors.  With your partners.  With your friends and family.  Don’t sugar coat it.  Be real.

Give Till It Hurts

We sold Infectious’ assets to one of the manufacturers whom we worked with.  As part of the sale, the acquirer wanted to hold back a percentage of the acquisition price to ensure I supported the transition.  True Ventures suggested we handle this amount as a consulting agreement between me and the acquirer.  It was a generous gesture to let me take a small amount of cash off the table.  However, when the sale completed and I was paid for the transition work, I re-distributed all of the consulting fees to investors.  In the grand scheme of things, it was probably a token amount of money for them, but I figured that intensely respecting investment preferences at my personal expense, even when I was not required to, demonstrated how seriously I took my job as steward of the investment.

Recognize What You Are Walking Away With

During this process, I beat myself up pretty heavily, which I imagine is only natural.   As I was navigating the wrap up, an investor approached me with an interesting CEO opportunity.  It kind of made my head spin and was completely unexpected.  In retrospect, I can now see the myriad of skills I learned along the way, but, in the midst of the storm, it was hard to see any upside.  I may not have walked out with a successful exit, but I did walk away with a transformed skill set.  In the end, my education was my return.

Relationships. Relationships. Relationships

If you’re a professional entrepreneur, a company is an event in a career.  Infectious was number three for me.  While each of these companies have come and gone, the relationships created live on.  It was easy to get caught up in the ugly details of the Infectious unwind, and I unintentionally risked some friends and allies as I negotiated the whole thing.  Sometimes it can be hard to see the forest for the trees.

Epilogue

I won’t pretend that I followed all these lessons perfectly.  Hey, they are the lessons I learned, not the one’s I started with.  I am proud to say Infectious still lives, continues to make amazing products and cut royalty checks to artists.  A huge thanks to Phil Black, Tony Conrad, Jon Callaghan, Shea Di Donna, Braughm Ricke, Royal Farros, Josh Felser, David Leider, Tim Albinson, Jason Moline, all the Infectious employees, and my incredible wife.  As for me, I am still part of the True Ventures family, having since joined Fitbit (another True Ventures portfolio company).

This post was written by Tim Roberts, CEO & Founder of Infectious a True Ventures Portfolio Company.