It was a year ago today that I walked out of my last due diligence meeting for my company, Kyk Energy. To date, that meeting has been the worst ass kicking that I have ever experienced. I walked into the conference room high on excitement leftover from delivering, “the best investor pitch that the room had seen in years” just a week earlier. After my pitch, every investor signed the interest sheet. It was the golden opportunity, negotiating the terms on our new $450,000 fund raising round with a group of high net worth investors that could easily make my entrepreneurial dreams a reality. Closing this round would make me a paper millionaire, at 20 years old.
The first half of the meeting was incredible. We told our story about being broke college students building a product in our dorm, raising a little seed capital and bringing our product to market, with some actual sales. We talked about the TV appearances, the newspaper articles and all the other juicy stories that I will have to save for other blog posts. The room was eating it up, until it was time to discuss the financials and the terms. This is where the meeting began to take a turn for the worst.
Within minutes of glossing over our past financial statements, term sheet and pro-forma, the onslaught began. Sitting across the room leading the massacre was Mark, a finance expert who has served as the CEO of a publicly traded company and “assisted Starbucks Coffee with several rounds of pre and post IPO financing and served on their board of directors”. For the rest of the meeting, Mark continued to kick Chris (@cmac2992 : follow him, he is going places) and my asses, picking apart every aspect of our business and tearing it to shreds. The thing we just spent every ounce of our energy for the last year building, was burned to ashes. I left that meeting defeated and lost, with many of my entrepreneurial dreams crushed.
I am not telling you this story to paint Mark as a villain but rather the opposite. Although I still consider that meeting the worst ass kicking of my life, it was also one of the most beneficial meetings that I have ever had. It was what we needed to hear. Although I hate to admit it, Mark was right. The sales numbers were comparatively weak. The valuation was high and the plan had key strategic flaws. We were a couple of 20 year old kids and we skated by on story telling and sizzle. However, the numbers were not there to back us up and because of that we hit a wall.
This is something I see a lot coming from young college students pitching dreams and a vision. They often get so caught up in their own pitch and storytelling that they become blind to the facts, data and actual dollars flowing in and out of their business. They read about the other entrepreneurs’ stories and think that they are deserving of the same huge valuations. They think that their business is sustainable simply because they have some users or a bunch of Facebook likes. I understand because I have been there, thinking the same thing. It wasn’t until I got my ass completely kicked that I was able to understand. If you are reading this and you have built your whole business on sizzle and story telling, I encourage you to take a hard, honest look at the numbers. Storytelling is key but eventually, when it comes down to the hard decisions, you need hard numbers. If not, Mark will kick your ass.
As always, I would love to continue the conversation on Twitter: @AndrewLinfoot.