How a Bad VC Deal Destroyed My Multi-Million Dollar Business | PROSPEROUS’

“This all seems pretty standard for a venture capital deal. »

That’s what the lawyer told me as he went through the pages of the terrible document. The long list of terms seemed foreign to me, but it was right. The agreement and the jargon were, and still are, standard.

Unfortunately, signing this “boilerplate” agreement cost me my business, and you – or any other successful and capable entrepreneur – could suffer the same.

From my kitchen table, I built a disruptive model for a $20 billion business. I had the courage and pride to believe that I would succeed. When the consultants saw that I was budgeting $10 million for the third year, they laughed and said I was crazy. The third year we reached $22 million.

I built the model, evangelized the supply chain, motivated a team, and designed the technology, while securing and maintaining multi-year, multi-million dollar contracts with major brands such as AT&T, American Airlines, Citi, Chase and State Farm. I led the company to #8 on the Inc. Companies. 500 fastest growing and #1 on Crain’s Fast 50.

I was living a dream, until it became a nightmare when I raised the wrong venture capital.

The venture capitalists used every ploy they could to prevent me from bringing in new capital. They sold the company in the middle of the night, without my knowledge. When they finally told me it was sold, they told me I had three days to agree and asked me not to blame them. I did not agree and reprimanded them. I received an offer from a major private equity fund for $3 million more than their deal; They still refused to sell it to me. I tried to fight them, but they were backed by billionaires who told my lawyers “they would love nothing more than to go to war with this woman.” “

I was devastated. So I decided to build a better system for funding entrepreneurs and share my lessons with as many founders as possible.

Here are three strategies I wish I had known before I lost my business.

Related: We cannot rely on venture capital funding to build a fair and prosperous entrepreneurial economy. Here’s what to do instead.

Be creative

Consider all other forms of capital before signing up for PE.

• Get capital. Find a profitable business you can own, then contact an SBA lender to get a 7(a) loan.
• Equity is your most valuable asset: the most expensive debt is always cheaper than equity. Before giving away some of your equity, take out a personal loan, mortgage the house or car, or borrow money personally from the person who will give it to you.
• Take HVAC for example. Corporate venture capital has subject matter expertise, large infrastructure, and contracts within or within its supply chains.

Become an investigator

There is no divorce from a bad VC – so take the time to choose your investor.

• Before you spend a single dollar, take the time to get to know the person you are going to sleep with. Ask for a list of all the companies they have funded, check against public records, then pick up the phone and talk to the founders of the portfolio companies. Check out any that aren’t listed on their website and talk to the founders.
• Find out where the money is coming from. The people you are talking to may be accountants who have been hired to manage the fund. Meet the people who have the money. Share the bread with them. Find out what kind of people they are. Make sure you want them in your business. Get the names of all GPs and LPs and do your due diligence on them. For just $99, there are plenty of services and sites you can run bad actor surveys on.
• Has the fund ever been the subject of a lawsuit? Search the lawsuit database to see if the fund is named in a lawsuit. I learned too late that one of the billionaires in the fund my company sold me had filed a lawsuit against the Obama administration. He wanted to prevent his employees from accessing abortion through the Affordable Care Act because of his religious beliefs. It should never be on my cap board because our values ​​are not compatible.

Related: 3 Reasons Why Lack of Funding Could Be Your Startup’s Secret Weapon

Be your own “advocate”.

The security agreement is not something to delegate. It is your responsibility to be your own advocate, take it seriously.

• Read each contract, line by line, word by word. Learn the terms. Make sure you understand everything. Know the meaning and effect of every word of this agreement. Liquidation options, blocking rights, redemption rights, intervention rights, carry forward, pari passu, partner choice – they are all fully armed.
• Get a second opinion to confirm that your attorney is correct. Use free local resources for entrepreneurs. There are 3,652 on helpforfounders.com.
• Be aware that you are unlikely to be able to defend yourself against venture capitalists in court. There is no precedent of founders successfully defending themselves. Most founders who need venture capital do not have the money to pay for a long process, especially against those who need it.
• Say no. The right partner wants you to be comfortable. If not, then walk away. Losing your venture capital is better than losing your business. believe me

There were so many things I didn’t know before I signed up. The mistakes I made allowed people to take advantage of me. It took me burning myself to realize that the venture capital industry is broken, anti-entrepreneurial and favors the rich, white and male, while neglecting the great – some founders and the necessary inventions. I hope that with these lessons and resources, entrepreneurs reading this will get the upper hand over bad venture capitalists.