Hypothetically speaking, a startup gets some rounds of investment from VCs, operates for a few years, and run out of runway. What do these final months look like? Do the investors try to get their money back?
From an employees perspective:
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They will prohibit vacation or send everyone away.
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Your salary will come late.
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Various people you haven’t seen will visit the office.
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There’s a running gag of packing up to move offices and being told you have all been fired the next day, Arrested Development style.
From a higher-level perspective:
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Some investors will write off losses to save on their taxes.
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Others will try to sell any tech or other properties the startup has managed to create to recoup losses.
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Creditors and bond holders will be paid first before stock holders. Most vc funding comes in exchange for stock.
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I was at one for the end. Here’s how we saw it go down.
Hyperbole increased on the upper floor. Lots of "big talk " about the future and less chat about the job at hand.
There was a round of death rattle hiring where a whole bunch of people were added to the team.
Then last in first out.
Some of those new hires were there for less than 3 months before they were let go.
Then bloodletting. One or two redundancies a month. Their work being shared between the remaining staff. Told each round would be the last as the company restructured.
The worst bit, the people being fired knew they were going when they came to work in the morning to find they had been locked out of all the IT systems. They then spent the rest of the day sat around waiting to be summoned to be let go.
Meanwhile, the upper floor seem to be driving new cars and spending a lot of time outside the building. You also notice some new management faces and overhear chat about another business.
This massively increased workload and killed morale. Going to work felt like putting on your dead best buddy’s coat and doing an impression of them to yourself in the mirror whilst you had to hold down your own job, which had gone from pressured with purpose to pointless slog.
But in return you are promised a raise in the future.
And then one day… You turn up. Your team are all stood outside. The doors are locked and the paperwork is on the post. Most of us got paid most of our last paycheck.
Often the VC’s, if they have control of the company, will bring in “gray hair” managers to try to turn things around. The kids formerly running the show may or may not stick around. The first thing the gray hairs do is cut back to a skeleton staff, cut the snacks, and even coffee. They’ll try to sublet the surplus office space. One startup I worked at had a fire sale on desks and laptops and such. I got some good deals. Infosec goes out the window, as do most new features. You trim back to the barest minimum infrastructure and staff. If your books seem reasonable, then they try to sell what is left. It can be very strange being one of 5 or so essential staff left after 50 or 100 of your coworkers are gone.
Small yet essential tip:
If you’re one of the last 5 left after 50 or 100 of your coworkers have been laid off, take the hint and move on. The company is circling the bowl. You will be left with nothing when they go under, as the execs cash out what’s left of the company and creditors take the rest. Even if the company is sold and the new company seems to take you on, usually the leftover people will be laid off once knowledge transfer is complete. Don’t think that you have any specialized knowledge that they can’t afford to let go…new execs generally don’t care about that, they only look at the bottom line. Someone cheaper can and will do your job.
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Talking about tech startups:
Depends on the startup. If they have a good team, they might get acqui-hired. If they have any patents or other IP, they might get acquired (for not much). Investors get the bulk of these types of exits, and the founders and employees get screwed.
If the startup doesn’t even have that, they may just wrap up the operation and go out of business.
Interesting, the place I work at still has runway (apparently), but we’re not close to being profitable, have no clearly defined market fit, and we’re rapidly bleeding long term hires that are getting fed up and quitting. I’m sensing from the unusual silence from the founder that discussions of some sort are happening higher up that we’re not privy to. I’m trying to figure out what the signals match up to.
we’re rapidly bleeding long term hires that are getting fed up and quitting
unusual silence from the founder
You should freshen up that resume and LinkedIn profile
I agree. As well as getting out a few applications now- there’s always a chance when things go to hell, the stink comes off on you.
If the long term hires are leaving that’s a good sign it’s time to look elsewhere
Can you elaborate on your stink comment? Do you mean just being someone who was laid off (which I personally don’t have an issue with) or something else?
Having worked for a shitty company like Theranos or whatever is not great for your resume. You want people to read your resume before the company name is tainted by bad press.
if there was some reason for it to close that wasn’t “we just ran out of money”, etc, then people from that start up can get a bad reputation.
For example, Theranos. when Theranos went to hell, with their boss being indicted for fraud and shit… employees started having to explain what they did there, and that they weren’t part of it, when applying to new places. compared to people who left before it happened… for them it was easier “Well, at the time, we believed in the product and we didn’t know it was fake,” somebody in branding might say. For others who stayed on until it shuttered completely… It might be difficult to explain why that is.
simply having a product that doesn’t work out isn’t difficult. But when that product is a total fraud, that’s a different story. Or if there were rampant corruption, or some other sort of thing.
I’m not saying that’s how it’s going… just that, if it’s going down hill, jumping ship now might make it easier to land a new position elsewhere. If the old hats are jumping ship… it’s not a good sign. it means the company has burned through that loyalty. And depending on your field, waiting with everyone else might mean having to compete for with a dozen others for the same position. you don’t necessarily need to make a decision now, but, if there are dream jobs, you might as well apply for them.
I feel bad for the people who’ve worked at companies like that. Obviously the “morally correct” option is to quit as soon as you find out what you’ve been “working on” is fake, but I imagine not everyone would have that choice, particularly the low level peeps. I feel like you’d probably end up having to write off the experience entirely and exclude it from your resume or fudge the dates or something to have much luck of getting hired elsewhere
IMO? The morally correct thing is to report them. But yeah. It definitely sucks.
Oh, it’s sparkling, and I’ve backed up all my proof of awesomeness to show the next job. I’m finally in a place after 25 years of constant employment where I don’t fear unemployment. We’ve been diligent about building a buffer, and I have solid generalist skills and experience in a very popular tech movement.
We went through an intern phase, and the remaining ones (that are now employees) don’t have the same experience moving between jobs, so my focus is on prepping and guiding them.
FWIW, not being profitable isn’t such a red flag. It’s not uncommon for a startup to never get anywhere near profitable but still be fine. But in your case, it sounds like there are other signals too.
“Bleeding long term hires” are reading the tea leaves. Better to get a new job when you have one, finding a job when you need it is much harder.
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I don’t understand what happened with the chemicals?
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“You know what’d really help our finances? Being sucked into a DoTerra pyramid scheme.”
Next level scummy haha.
This documentary tracks a startup for 2 years. That startup did not make it through.
In my experience, as long as the leadership is somewhat transparent, it’ll be completely obvious. And usually begins with attempts to reduce burn rate like auditing of assets/expenditures and of course layoffs.
I’m assuming you’re asking as an employee and not functionally how to shut down your business.
Yep, as a regular employee. And we do lack transparency, and had layoffs last year. It’s also hard to read the signs as I’m in a totally different timezone and only see them in person a handful of times a year.
If you’re concerned about it, ask. Being direct is the way I would go. Something as straight forward as “what’s our runway looking like?” They should have an immediate answer for how long they can last at their current burn rate. And if they become cagey or refuse to answer these kinds of questions, it’s a red flag and it might be time to consider your options.
Though I suppose that depends on your financial security and how you think they would react.
I’m pretty direct with him, but I think he’s quite bad at awkward discussions and good at bluffing, so I don’t think I’d get a useful answer if things were going badly.
There are absolutely lawsuits around startups where funds were believed to be misappropriated, but if the startup was responsible and just couldn’t become profitable through bad luck then that’s just part of the risk of investing and why investment firms do research on the companies they are interested in. The reason it would close down would be because the investor just doesn’t want to lose anything more.
The one I was at just gathered everyone together to let them know layoffs were coming. I was also part of the tech support for the office so I stayed a bit longer to help them wind down systems, wipe hard drives, that sort of thing. The owners were pretty nice/upfront about the whole thing, basically gave everyone something like 2-3 month’s pay upfront & told everyone the business is winding down.
The owners did try to find a buyer for the tech & maybe break even or recoup some losses but that didn’t pan out. AFAIK the investors just took it as a loss, it’s a startup and sometimes startups fail.
We weren’t in fancy offices or anything like you see in movies & whatnot, it was more like working in an industrial warehouse converted for office use. Like the kind of building that doesn’t provide hot water unless you install water heaters yourself, no central AC, that sort of thing. We had one final party & trashed the space on the way out LOL. I think they just walked away from the lease, it’s not like there was any $$ coming in to pay it anymore.
In the last few months after moving out a few remaining people (the owners, tech support, etc.) worked from within the investment group’s own offices (they gave us a spare room to work in). Mostly to deal with the old systems/hard drives & prep the existing data in case the owners found a buyer.
Depends on the employer. Some will cut their losses fast, others will hold on till the bitter end.
I somewhat know one of the latter. His startup was going down hard two years back, but even now I still see him active once in a while on the same project. No idea how it’s faring, but the guy is still at it. Doubt he still has the same team though, so be ready to move if you’re one of the more expensive hires.
