How an “investor” from Silicon Valley almost kills our company
He still owes us $32.000
I co-founded Diacode back in 2010. We started doing “web development” with PHP and a year later we became a Ruby on Rails development shop. Originally we had an office in Madrid, but later we switched to remote work. Soon we realized Spain was a very small market for Ruby development and started looking for new opportunities in the rest of Europe and the US.
A month in San Francisco
In 2013 I suggested a trip to San Francisco to my partner Victor. We had two goals: first, to fulfill our dream of visiting Silicon Valley and second, to open a new market for Diacode. We booked a room in an awesome place called 20Mission, a Hacker Hostel in the Mission District.
After two weeks meeting people there and attending every meetup we could, the connections we were making began to bear fruit. Matt, a friend from 20Mission asked us to join him in a hackathon in Mountain View and help him finish his new project. We did it and had a lot of fun. In return, Matt invited us to meet a friend of his, a guy who was “a famous investor” in the Valley. Let’s call him John. (I will reveal his name later).
The reason for the meeting was because John was the co-founder of a famous dog kennel chain and I am co-founder of Gudog, a p2p marketplace for dog owners and dog sitters in Spain, UK and France.
We took a Sidecar (startup where John is EIR) and went to his house. The moment we walked into his house we realized the guy had money into his pockets. It was wonderful, two big floors incredibly furnished and a nice backyard (the one in the photo). He invited us to sat at a huge wooden table and I pitched him Gudog.
I remember that meeting as the most difficult one of my life. John was incredibly rude, he didn’t like the idea and he repeated over and over that it would never work. Thinking about this now, I guess it makes sense, it’s like if you were to have the founder of Airbnb and someone from the Hotel industry sit down together: they won’t agree on anything.
It was clear that John would never help me with Gudog, so we tried to talk about something else. Our friend Matt started telling John about how we helped him in the hackathon and he showed him the site we built that day. John was impressed with the work we did in only a few hours, then he looked at me in the eyes, with a long silence (I felt like it was hours of silence), and he suddenly said “I think you can help me with something”. He invited us to visit him again tomorrow.
That something was the new version of a SaaS to manage objectives and goals for big companies. You can imagine it as a Basecamp for high-level executives. We re-built the front-end that was coded by some very bad programmers from India. John liked the way we worked and decided to offer for us to build the back-end as well. The only requirement he had was to stay one more week than we’d planned in San Francisco so we could bootstrap the whole thing.
We changed our plane tickets, wrote and signed a consultancy contract, and spent our last week in Silicon Valley working every day at his house with him, his personal assistant, his maid and his cat. I remember his house was full of nice artwork and pictures of him with famous people such as John McCain. He definitely seemed to be enjoying a successful life.
Later that week we discovered John had some financial issues that he was expecting to solve by selling his fancy house and moving to a cheaper place. We were a bit worried but he seemed to have everything under control.
Just before we were flying back to Spain we saw the first red flag: one of the terms of our agreement was that he would cover all the expense for that extra week in San Francisco. Those expenses were a total of $1.800 and he only paid us $1.500. At the time, we didn’t know that was the last time we would receive any money from him.
The debt
Once in Spain, we continued working on the project and a week later we sent him our first invoice (we agreed on biweekly invoicing in the contract). The invoice was a total of $15,000. We spent some days looking for an alternative way to receive money by using Ripple to avoid the insane fees for IBAN/SWIFT transfers from US to Europe. Meanwhile, we continued working on the project. That was a huge mistake.
A few days later when we realized Ripple wouldn’t work we asked him to do a normal IBAN/SWIFT transfer. He said he would do the transfer as soon as he closed the sale of the house. We discovered he couldn’t sell the house that easily because of some sizable debts he had.
John was a very persuasive guy and told us he was close to getting companies such as Walmart onboard as the first clients of the product. To get those clients onboard, he said, it was important to continue making small changes to the app. If he could get the first client, he said he would get funded and we would receive our money.
Suddenly, I saw ourselves in the middle of the startup ecosystem, which I know well as the Gudog co-founder: an ecosystem where you are willing to take huge risks in the hopes of getting a huge return in the future. But that’s not what Diacode was built for: we do high quality development consultancy, we don’t play the startup game.
We always saw this project as a huge opportunity for us to start working for clients in the Valley.
Our financial situation was untenable. By that time John owed us two invoices for a total amount of $32,025. I spoke to him and made him understand we weren’t doing any more work until we got paid.
The straw that broke the camel’s back was one day when we discovered some new git commits by another developer. John had convinced a friend of his to continue doing the changes he needed over the source code we wrote and that he never paid. That developer was the CTO of the previous version of this SaaS we were building.
This huge debt forced us to delay our own salaries for several months. It was summer and usually is hard to find new leads during this time of the year . We even thought about closing the company and doing something else. It was a very hard time. Our own dream somehow became our worst nightmare.
Meanwhile, thanks to his daily social media activity, we saw how he bought a new car and Google Glass, got a new loft and traveled a couple of times to India.
The recovery
Fortunately, once again we managed to handle the chaos and several months later, with a lot of hard work, we were fully recovered from this madness.
I talked to some lawyers from San Francisco and their conclusion was that the expenses of suing him for breach of contract would be too expensive. Also, with John’s financial situation it would be very hard to actually get paid.
Since then I have thought many times about writing this very blog post. I wasn’t sure about how going public with this story could affect our own company. For a long time we couldn’t event share the whole story with the rest of the team.
I’m writing this now, a year later, because even if I know we probably won’t ever get paid, I feel it is the right thing to do. Also, John cares a lot about online presence (he has 37K followers on Twitter), so maybe sharing this story not only with him but with his followers as well will make him realize what we suffered because of him.
Who is John?
John is actually Ritu Raj (Twitter, Facebook, LinkedIn, Wikipedia, AngelList, Medium). The dog kennel chain he founded (and sold) is Wag Hotels. The SaaS we built for him is Objectively.net, the new version of Objectiveli.com
Ritu Raj owes us a total amount of $32.025.
Lessons learned
- Signing a contract for every project is a must, but often a contract doesn’t protect you from these kinds of scenarios, especially when you work with clients from other countries. The best way to ensure you will get paid is to be very careful when selecting your clients.
- We should have asked for more money up front. The $1,500 he sent us for our travel expenses wasn’t enough to prove he had the resources to pay for the whole project.
- We should have stopped working 5 days after sending the invoice and not receiving the payment.
- Negotiating with persuasive people in a language that is not your primary language is a huge disadvantage.
