
Ask HN: What do i do as a technical lead if my startup is running out of money? - erbdex
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.<p>We are into IoT. My CEO is doing his best but he isn&#x27;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.<p>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&#x27;t go via a common contact. We do not have inner-circle VC contacts either. Banks here aren&#x27;t willing to fund us, even though we need just $500K to go through manufacturing.<p>We&#x27;d be hitting the concrete in a couple of months. Advice?<p>Edit: Sympathy would help but little. What can we do with regards to VCs from here, especially when we know next to no one.
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phantom_oracle
I 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).

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erbdex
In 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. :)

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davismwfl
In 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.

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MalcolmDiggs

      > *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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brudgers
I 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.

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fsk
Why 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).

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erbdex
Sounds 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?

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fsk
Your 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.

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erbdex
The 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.

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antaviana
Find more customers and ask them an advance payment or ask your current $3M
pipeline for an advance payment.

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erbdex
The 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.

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danieltillett
This 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.

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erbdex
This 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.

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danieltillett
My advice is put contact details in your HN profile so that people can get in
contact with you.

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erbdex
Sure, done.

