Worries
Toad Learns a Valuable Lesson
The night was cold and dark.
“Listen to the wind howling between the office buildings,” said Frog. “What a fine time for a cautionary tale.”
Toad sank deeper into his Aeron.
“Toad,” asked Frog, “don’t you like to be scared? Don’t you want to learn a valuable lesson?”
“I am not too sure,” said Toad.
Frog ran another cup out of the Nespresso.
He sat down and told a story.
“I was just out of college and working at my first startup,” said Frog, “We were running out of money and we needed an injection of capital. The bubble had burst and funding was tight. Our CEO was desperate to keep the lights on, but our CTO said, ‘I do not want to have to pitch to the Old Frog VC.’ ‘Who is that?’ I asked, and my CTO answered, ‘A terrible investor. He searches for depressed founders in need of cash on dark nights, and he consumes their lost startups into his amorphous digital media portfolio.’”
Toad sipped his coffee.
“Frog,” he asked, “are you making this up?”
“Maybe yes and maybe no,” said Frog.
“My CEO and CTO were out beating the bushes for fresh capital,” said Frog. “They told me to keep my head down and manage the team until they returned. I tried to keep my mind on my work, but our bank account balance kept dropping. I was afraid. Then I got a phone call from our founders: they had accepted his term sheet, and the Old Frog VC was coming by the office the next week to do a little due diligence.”
“Frog,” gasped Toad, “are you shitting me? Did this really happen?”
“Maybe it did and maybe it didn’t,” said Frog.
Frog went on with the story.
“The Old Frog VC came into our office and sat down in our biggest conference room. ‘I am not hungry now,’ said the Old VC. ‘I have invested in so many tasty young startups. But after you open your books, after you list all of your customers and show me all of your intellectual property, I will be hungry again. Then I will invest in YOU!’”
“The Old Frog VC leaned back in his chair. ‘Show me everything!’ he shouted. I walked the Old Frog VC through our financials. He nodded his head. ‘I am beginning to get hungry,’ said the Old Frog.
I described our market strategy and our business model. ‘I am getting hungrier,” said the Old Frog VC.
I listed our patents and described our software platform. ‘I am very hungry now!’ he shouted.”
“What happened then?” asked Toad.
“The Old Frog VC wanted to give us money, but it would have been a down round. Also he wanted fully participating, preferred stock with a 10x liquidation preference. So at the last minute I revealed that one of my college friends, who had been with us at the beginning, had written some of the original software without having first signed a stock agreement or employment contract. This meant that there was a problem with the IP. The Old Frog VC roared and screamed but it was a deal breaker.”
Frog paused to pour another coffee, and then continued.
“There were lawsuits. Eventually we were acqui-hired by a web media conglomerate that could bankroll our mounting legal fees,” said Frog. “Then that company got bought by AOL and I did a few years in corporate before returning to startup life.”
“Frog,” asked Toad, “was that a true story?”
“Maybe it was and maybe it wasn’t,” said Frog, “I’m still constrained by non-disclosure agreements as to what I can discuss publicly.”
Frog and Toad sat next to each other at the conference table.
They were scared.
Their coffee shook in their hands.
They were worried about the future of their startup.
It was the same constant, unchanging level of worry that they’d been feeling since they founded the company.
