Late Advice for Founders with Limited Runway
Founders with limited runway often face difficult decisions. This blog post discusses advice for founders in this situation, including evaluating acquisitions and voluntary salary cuts.
Now: Building @Insurance_Dekho Earlier: Founder @VerakInsurance (YC W21; acquired) Hiring for Eng, Marketing, Sales & Ops roles
Last month, I spoke with a founder whose company had < 3 months of runway & was evaluating an acquisition.— Rahul Mathur (@Rahul_J_Mathur) June 21, 2023
I could hear pain in their voice - voluntary salary cuts taken by staff, founders running up personal debt & okay-ish terms for acquisition from the acquirer in question.
It was a bit late for me to give any useful advice - but I thought I'll just list down what we discussed:— Rahul Mathur (@Rahul_J_Mathur) June 21, 2023
1. At the <6 runway mark, IF you don't have runway visibility (either by becoming profitable or raising a round) - PLEASE begin M&A conversations thru existing investors.
- In most cases, you'll land an acqui-hire or management buy-out, which is a much better outcome than a shut down— Rahul Mathur (@Rahul_J_Mathur) June 21, 2023
2. Once you've found an acquirer willing to take you + team, with today's macro let's get realistic about what you SHOULD negotiate for:
(a) Acquirer must pay legal fees for diligence— Rahul Mathur (@Rahul_J_Mathur) June 21, 2023
(b) Acquirer should pay for cost of winding down your company (IF this is applicable; and, if it is - come chat with me)
(c) You + acquirer should agree on which staff will be retained & at what CTC
- IF people have taken deep salary cuts, try to get the acquirer to pay a joining bonus to them - The cost of that bonus will be fully recuperated from roadmap acceleration (no hiring cost & onboarding trained + motivated resources)— Rahul Mathur (@Rahul_J_Mathur) June 21, 2023
(d) After closing out company & core staff, now you can come to your + co-founders compensation.— Rahul Mathur (@Rahul_J_Mathur) June 21, 2023
Please ask for a one time bonus to cover any liabilities you've incurred running your company - Do basic math on the total comp offered (cash + stock), make sure you're comfortable.
3. Engage your investors throughout this conversation & before signing any documents, make sure you get the requisite NOCs from them in writing— Rahul Mathur (@Rahul_J_Mathur) June 21, 2023
- And, make sure that a legal counsel is doing this with you
Personally, I think every deal can improve on (2).
There are also some softer elements of compensation calculation which I'm happy to discuss with anyone who is in the above situation.— Rahul Mathur (@Rahul_J_Mathur) June 21, 2023
Do let me know if you have any questions - always here to help another founder navigating the exit maze.