Have you ever made a very risky investment that paid off big time?

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JASON LEMKIN

Yes.

In my first start-up, the VCs pulled our term sheet between signing and closing. They had a legitimate reason — our COO had pulled out of the deal. Which was my fault, for recruiting a prestigious, but sketchy, COO.

But it was a very stressful time, when the term sheet was pulled. I had 9 employees and no way to make payroll. In fact, we were about $250,000 in debt.

I had about 11 days to avoid shutting everything down. So:

  • We went out and got our customers to agree to buy $6,000,000 from us.
  • We went out and got our prototypes built — and shipped.
  • We went out and closed a $3m deal with our key manufacturing strategic partner.

All in those 11 days.

With that …

We convinced the VCs to come back to the table. At a much lower valuation (an effective $2m pre, instead of $7m). We had to give back 50% of our founder stock. And the VCs made me sign a $750,000 full recourse promissory note.

This exceeded our family liquid net worth by 30x-50x or so. Outside of our house.

I signed it, no questions asked. If we’d failed, I guess we would have lost not just our savings but our home.

I didn’t tell my wife.

12.5 months later, we sold the company for $50,000,000.

This was a terrible idea, signing the note. I mean, I can’t even believe looking back the VCs made me do this.

But sometimes … you just do it.

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Published on June 20, 2017
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