Closing Financing in Difficult Times

March 23, 2020

Jacob Malthouse, Consultant Canada Cleantech Alliance

“The S&P 500 is down ten percent today. Are you going to close?”
I still remember that unexpected call from my colleague Nick. My company, Big Room Inc, had been negotiating our first seven figure financing and we were on the verge of closing the deal when the 2008 financial crisis hit. It felt like a building collapsing just as we were trying to enter it.

We had spent 18 months assembling a coalition of angel and corporate investors from three countries.

Our strategies and action plans had been painstakingly conceived - we had to understand the rights of different shareholders, the lead investor, the founders and the Board. We had to navigate our way around tricky questions about the governance of an organization and financing, asking and answering tough questions like - Who would drive the next financing? What happened in different scenarios like outperform, or more importantly underperform? What if one of the founders died, was injured, or left? What were the reporting obligations?

And it wasn’t just the research and planning. We had invested in the emotional and personal effort required to sell ourselves and our ideas, to build trust and develop a coalition of the willing. The only thing these investors had in common was a belief in us and our plan.

To get people to believe in you is a heroic undertaking. To find people who will put real money behind those beliefs is just a grind. We spoke to hundreds of wealthy investors and their representatives. We had finally come close to a term sheet.

And the bottom fell out. We knew it was coming. I had friends in finance in Europe and the US who warned us. Somehow it didn’t feel real. No one was sure how bad things would be. We had just been through eight years of steady growth. So even though I had told my mom to sell out of the markets in June, it just didn’t seem like we’d be impacted. But we were.

Startups around us started dropping. Investors simply stopped returning phone calls to their entrepreneurs. People had to walk away.

Our investors didn’t and we didn’t. In the midst of the financial crisis, with a lot of late nights, anxious days and marathon meetings, we did manage to close. I’ve summarized some learnings below, but at the heart of that success was cleantech. Yes, our investors had bought into our success, but they had also bought into something bigger than us - our mission as a cleantech company to mitigate climate change and reduce emission. They saw the bigger picture and understood the vital importance of cleantech startups in the bigger picture of the economy and the environment.This bigger picture is the same today.

Twelve years later my company is still going strong. I now work to help other entrepreneurs. We need to stand together now as a community because entrepreneurship will be needed more than ever once this passes.

Here’s some lessons learned from my first, and hairiest, closing:

    1. Make the calls. Make calls to each of your investors and explain your commitment to them. Make your pitch about the big picture. About working together to protect entrepreneurship and our economy. About how you will stick with them if they stick with you. Be calm. This is a great time to show your courage under fire. Explain how you will be extremely careful with capital during this period of risk.
    2. Close your round. Call your lead investor and tell them you want to close now. Call your lawyer and direct them to close. Be assertive. Your lawyer will not want to rush things, but as the entrepreneur it is your responsibility to take the risk. Mentally square bracket concessions to come back to in a later round. Get the money in the door.
    3. Preserve your relationships. Close on whatever you have. If you can’t close then park it. Thank everyone and wish them well. Tell them you will circle back when things calm down. Tell them you value their support. This respects their time and mental energy. Preserve the relationships at all costs.
    4. Plan for the long haul. Develop a triage financial model at minimum burn. Set a date to trigger it. Over communicate with your staff, board and advisors. Everyone will be distracted so you will need to email and then follow up via phone to make sure people are getting the message. If you can avoid a round right now do it.

My final piece of advice isn’t one you’re going to like, but it’s one all entrepreneurs live with. Update your CV. Some companies won’t make it. Like the 2008 financial crisis, the 2020 Covid-19 crisis is a massive global event that’s not within any one company’s control. There is no blame here, and some companies will just be hit too hard to recover.

Lean on your family, friends and mentors for support. It’s ok to vent, just never to your employees and investors.

All we can do at the end of the day is stand together as a community. Cleantech is even more vital today than it was in 2008. Together, we can weather the storm and emerge stronger.

If you’re an entrepreneur and need confidential advice, opinion, venting, listening or whatever get in touch. I’m on Twitter at: Onward!

About the Guest Author

Jacob Malthouse

Consultant, Canada Cleantech Alliance

Twitter: @jacobmalthouse

Jacob Malthouse is an executive strategist with interests in clean technology and cyber-sustainability, or how information operations strategies can be employed to defend against cyber-policies and practices that impinge on sustainable development and climate action. He holds a  BA in Geography and Economics from the University of Victoria, Canada and lives in the Pacific Northwest with his wife and two children.

Note: Guest posts and articles represent the diversity of opinion within the cleantech world and do not necessarily reflect the official position of Foresight. They are presented here as part of our mandate to share the voice of the Cleantech community in Canada.