We had been talking off and on with an accelerator for about a month. We had pitched them, had a few calls, but lived on the other side of the country. They wanted to meet in person which was really not feasible for us. We worked at full-time jobs while hacking away on the side and scraping together whatever money we had to fund our company.
A little flashback, first: I had dropped out of grad school and taught myself programming to start my first company. After a year of living on my wife's student loans, I got "acquihired" by a startup that was run by one of the accelerator's mentors. They gave me 3% equity, a $10k moving bonus, $15k for the company, and a $75k/year salary. I said yes.
Three months later, I decided to quit. I was the only technical person in a company consisting of the two non-technical co-founder, co-CEOs, a project manager, and myself. They had burned through $700k already and hadn't built anything yet. It was becoming clear that my product was going to be their product. In the best case scenario I would spend the next four years working on my original startup, only now for pennies on the dollar.
The purchase of my assets still hadn't gone through and I hadn't yet been paid, aside from the moving bonus and salary. The co-founders claimed I had acted in bad faith and asked for the moving bonus back. I explained that I wouldn't have moved had the moving bonus not been offered (as I couldn't have afforded it). If they had wanted that money back in case I quit, our contract should have specified as much. They relented, and we went our separate ways.
Fast forward another year, back to our accelerator story. The accelerator decides they want to afford us the opportunity to meet in person. They agree to pay for flights so long as we pay for our own hotels and car rental. We also have to talk up the trip on social media, talking about how they paid for our trip, our meetings with investors, etc. Small price to pay, we think.
We make the trip and have some pretty productive meetings. They seem to like us. We fly back, and after some back and forth, they decide they want to invest. Of course, they still need to do their due diligence, so it's going to take some time. In the meantime, my co-founder and I get fired from our jobs. You see, our boss found out about our trip to the accelerator since it was broadcast over social media. It was cool when we were working on a startup after hours. It wasn't so cool when we were talking openly about actually starting a company.
It doesn't matter, though. We made it into the accelerator. They send over the paperwork. It's a convertible note with pretty standard terms, fully signed by all the partners. We sign and send it back. We can't believe it's happening. I sign a lease on an apartment in the new city and my wife and I pack up our apartment. My co-founder does the same.
Suddenly the music changes. They go dark for a couple days. I'm nervous because I have a U-Haul scheduled. I finally get a call with one of the partners; I'm supposed to start a 3,000 mile move the next day. He explains that they can't do the deal. A check isn't coming. He can't explain why.
My mind races and I think: it couldn't have been that mentor, could it? My resume was fully transparent. They should've seen the connection. And they did their due diligence before they made the deal. How could that have slipped by?
I ask for an explanation but to no avail. They can't explain it. Not even a little bit.
Now I have to try to reorder my life. My job is gone. My apartment is already rented out to someone else. Luckily the landlord at the new place lets me out of my lease. I reschedule the U-Haul to take us to my wife's parents' house instead.
My co-founder was devastated. He wasn't used to startups. In fact, to this day he's been bouncing around trying to find a similarly stable job. I can't help but feel responsible. I recovered better. I decided to start consulting for other startups and have made a pretty good go of it.
That's my accelerator horror story. Anyone else have others?
> They agree to pay for flights so long as we pay for our own hotels and car rental.
This seems crazy to me. In my head, if a few hundred bucks for flights & lodging is too much to ask, how much dough could they really have to invest? Is this standard?
> It's a convertible note with pretty standard terms, fully signed by all the partners. We sign and send it back. [...] He explains that they can't do the deal. A check isn't coming. He can't explain why.
Is there any legal recourse available in this situation?
> My mind races and I think: it couldn't have been that mentor, could it?
Which mentor are you talking about here?
> Now I have to try to reorder my life. My job is gone. My apartment is already rented out to someone else.
You know, I've seen deals fall apart so often that until cash is in the bank I don't change my life. Maybe it's from my time as a car salesman in college - until the bank funds the loan, I wasn't counting my commission. Deals fall apart in all sorts of crazy and ridiculous ways.
if you're in sales, this is EXTREMELY important, doubly so if you sell for a startup. the deal isn't real until the money shows up.
customers will take advantage of your kindness, lie to you, manipulate you, appeal to your vanity, and they can smell desperation from a mile away. "give an inch and they'll take a mile" - these folksy old timey sayings don't come from nowhere.
there are all sorts of shitty people out there that will play napoleon for a day just because they feel they have power over you. it's sickening.
do not start work until you get the money. do not ship product until you get the money. do not pay your suppliers until you get the money. do not pay your sales people commission until you get the money - money didn't show up? well that wasn't a sale, now was it?
if they don't want to pay at LEAST a deposit, they're not serious. END OF STORY.
very simple in concept - very difficult in practice because there are some people who are just plain naive out there. one of the most important skills you learn as a startup is how to say no.
You need to have a sense for your customers, how much power they have over the money, and how much they'll suffer if you're inflexible.
I've spent years working with teachers, who (as patio11 will tell you) are not a great target market for ready cash, but who are very honest. I used to have an informal policy where a teacher would just tell me they were working on getting a purchase order, and I'd credit their subscription. I changed that to only crediting them a month at a time (after one situation where I realized towards the end of the year that one PO had never arrived.. it was stressful for the teacher, but all resolved amicably), but still, there's trust involved.
If I didn't trust them, a lot of these teachers would just be stuck without access for weeks -- the site would be far less useful to them.
- Edit: "until the cash is in the bank, don't change your life" still applies in my situation; payment was slow and unreliable (though paid in the long run), and that does affect planning.
There's no real legal recourse. I asked my lawyer the instant it happened. And even if there were, what's the best outcome you could get? Work at the accelerator with investors who hate you?
The mentor was the co-founder of the startup who "acquihired" me from my first startup.
And totally agreed on your last point. For me, it was definitely a lesson learned. The even better lesson was that I was spending a lot of time hustling for the wrong things. Why should I be working so hard just to get $40k? What would an accelerator do for me that I couldn't do for myself? Now I'm bootstrapping while consulting, a much more sensible choice for most businesses.
1) Fund a bunch of companies with the expectation that maybe 1 in 10 will succeed.
2) When the other 9 fail, you have a bunch of talented developers all in one place. And guess what? The really successful company is hiring.
It's pretty brilliant, if not Machiavellian.
I think these kind of stories need to include name and not be anonymous, I hate when people get away with this kind of behavior because no one is interested in calling them out on this shitty behavior.
No offense, I'm sure you have your reasons.
I wish it weren't so.
Would you be willing to disclose this information in private? I'm not affiliated with any accelerator but do have my share of experience with them and this kind of information is very interesting to me.
If you do - then you know how to reach me (email is in my profile)
Based on the OP and your story, I guess tech start ups have truly "arrived".
I hear that the VCs are flummoxed -- they have pots of money but they are not finding good prospects. The latest fad is to sprinkle little amounts of money around and hope they can pluck a promising seedling.
The important point is that there are VCs out there willing to write little 5 and 6 figure checks, for the hope of a real deal in the future. That has attracted professional deal makers, and this career looks especially attractive to people with weak technical chops for this industry but fancy they can make up for it with schmoozing.
Deal makers have a chicken and egg problem. They cannot get non-small checks without eggs in the basket. They cannot show any person with real money the eggs in the basket without promising future non-small checks to the future chicks. And sometimes people with money decide to not write the big checks until they see pretty chicks. Oops.
You were an egg. The deal maker here cajoled you to rolled into their basket with small amounts of money. And you were never given enough money to crack out of your shell.
I would point out that the deal maker is not screwing you over on purpose. But they may be telling you wildly overoptimistic things, while they are scrambling to see if any of a dozen different people will write a real check. When they refuse to explain, it is because they do not want to own up to making promises which they were not sure they could deliver.
As for Los Angeles, I may not have the best ear to the ground, but it does not sound like a top 5 location for recruiting tech talent. (I know you moved there, but the point still stands.) I would guess that those are third string deal makers who happen to believe they can rub elbows with unsophisticated money in the Hollywood area. (If they were really good, they would in SF Bay, Boston, Austin, NY, where the real VC connections can be found.)
I don't know that there's a good solution to this. I wish pud's fuckedcompany still existed, and there were a place for investors, too.
anonymous rating & reviews are a good way to go, even if the reviews have to be vague to avoid a backlash
In that case, they just needed better due diligence. They shouldn't have had us upend our lives because of that simple failure.
So accelanon your deal was in LA for $40K. There's only a handful of them. Hmm. My situation was pretty bad and I drove 3200 miles and rented a place for 4 expensive months. It was stressful, fun but not what I thought I was getting myself into. BUT the whole ordeal fired me up and I haven't lost a bit of focus. I am much better off now. If anyone wants info on what LA is all about hit me up.