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Ask HN: What do i do as a technical lead if my startup is running out of money?
We had a series A investor, who was putting in money on a monthly basis but stopped doing so last month citing a financial crunch on his side. This has hit us hard as we had no warnings.
We are into IoT. My CEO is doing his best but he isn't the best guy to raise money, especially at this short a notice. The good thing is that we do have working demos of our product and even purchase orders worth $3 million. And if you take my judgment, our solution is 10X-30X better than that of most competitors here.
But we need a couple of months of runway to be market ready. Hardware manufacturing is a non-trivial cost and no amount of team-solidarity can get us through this. We are from India and many VCs here are disinterested here if you don't go via a common contact. We do not have inner-circle VC contacts either. Banks here aren't willing to fund us, even though we need just $500K to go through manufacturing.
We'd be hitting the concrete in a couple of months. Advice?
Edit: Sympathy would help but little. What can we do with regards to VCs from here, especially when we know next to no one.
- davismwfl 11y agoIn the US, if you have real PO's worth decent money you can sell them in the factoring market at a discount of course, raising some funds to complete the cycle. It sucks but its doable. Not sure if you can do that in India, but I would imagine something similar exists.
- danieltillett 11y agoMy advice is put contact details in your HN profile so that people can get in contact with you.
- erbdex 11y agoSure, done.
- antaviana 11y agoFind more customers and ask them an advance payment or ask your current $3M pipeline for an advance payment.
- erbdex 11y agoThe purchase order is from a builder. Builders in India reinvest any and all their money into multiple parallel projects and have little liquidity to entertain advance payments. In fact, they're notorious for withholding payments even after availing the services. The reason banks aren't giving us a quick loan.
- danieltillett 11y agoThis suggests that you are going to need more than $500,000 as you wait around for payment. Given you are almost dead and if don't have any options then go to your buyer and say to them unless you pay now there will never be a product. Maybe offer them some period of exclusivity in return for paying now.
- erbdex 11y agoThis sounds good. Since we're product based- we don't really lose much even if we sell the first batch to them at [cost price + salary expenses]. We'd have done an iteration, would have a breathing space and traction even if no cash flow.
- brudgers 11y agoI sympathize with you in your misfortune. From the other side of the internet, this looks to me like the ordinary way in which startups die. With one investor plan B was by default folding the concern. With the money coming in monthly rather than sitting in the company's bank account there never really was more runway than there is now. Unfortunately when a company is in trouble securing funds on good terms becomes highly improbable. Securing funding on bad terms makes the death of a struggling company all the more likely at least in the sense that it remains under the control of the current owners if in no other. Of course I am just a random person on the internet so YMMV. Good luck.
- fsk 11y agoWhy was your investor only putting in capital one month at a time? Shouldn't he have put in enough to finance your first batch of hardware? I.e., if you knew it would cost you 12 months' expenses to make your first batch, the investor should have put in 12 months, rather than 1 month at a time for 6 months (leaving you stuck now).
- erbdex 11y agoSounds about right in hindsight. But the damage is done. This didn't come up earlier because he was in his sense 'mentoring' us, overseeing how we spent the money, how we hired etc. Anyways i was a techie, and was out of these flows. What do startups do to get out of such a spot?
- fsk 11y agoYour best option might be "Write this off as a learning experience and get a better cofounder next time." Since you're clearly desperate, even if you do raise money, it's going to severely dilute your equity. Do you walk away now, or waste another 3-12 months trying to pull things together? Don't make the sunk costs fallacy.
- erbdex 11y agoThe great thing is that we have a really good product. I am saying this objectively and not out a creator's bias. If we can pull off another 4-6 months, the entire thing will work like a dream. And there is little coming in our way, considering that the product we've made is superior to many by global standards. That coupled with the fact that the Indian market lags by a year or two gives us a real head-start here. This makes folding cards not just hard, but rather imprudent. Especially considering how startups with much less to show for than us are running around with so much money.
- brudgers 11y agoI agree because my gut tells me that all the important lessons have been covered. Except "know when to fold 'em". That's a class worth testing out of.
- phantom_oracle 11y agoI don't know how much of that $3 million is profit, but you could possibly sell that off at a price-point of around $2,5 million, allowing the investor to make $500,000 simply by carrying the risk. Bankers sell debt off all the time and in your case, you will simply be selling off future earnings at a discounted rate. You have to be really savvy about how you structure it though and not take it on as a loan of any sort. You mentioned to someone else how notoriously difficult it is to get payments from the building industry, which is probably a red flag that the bankers are indirectly hinting at you (and something you need to always structure your business around).
- erbdex 11y agoIn the worst possible scenario, $2 million is profit. This seems like a very plausible way ahead. We can cut profits to bare minimum and survive this phase. Sounds better than dissolving equity in bad equations right now. Thanks. :)
- MalcolmDiggs 11y ago> *My CEO is doing his best but he isn't the best guy to raise money...* This sounds like the biggest issue. In an early stage startup I think of the CEO as "Chief Fundraiser"...it's very important that they be excellent at raising money quickly and effectively. If I were in your position, I would start entertaining other options and offers; just to prepare yourself if the company goes under. Once you're personally prepared, I would have a frank discussion with the CEO and devote all possible resources to getting a competent fundraiser in the door. These kinds of things (sudden shortfalls in capital) happen often. In order for the company to succeed, you'll need a system in place to respond to these kinds of emergencies.
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