In the driver's seat | One company's promise prompts a jump from investor to interim CEO
I wrote a piece last October, “Shifting Gears,” that compared racecar driving to funding and supporting fast-growth companies. In that analogy, the entrepreneur is the driver, while the investor puts some gas in the car, jumps into the passenger seat to help avoid road bumps and provide some direction to find the fastest path to the shared destination. I’ve described the challenges of racing on the autobahn, the high rate of crashes and breakdowns, and the search for the best exit (see “This Way Out,” from the March 20, 2006, issue of Mainebiz).
With that as background, I’ve been driving down the road with Foneshow (www.foneshow.com), a Portland company that develops and delivers audio content to mobile phones, which I described in my May 14, 2007, column, “From Silicon Valley to Maine.” It’s been a tough trip, in large part because of the recession of 2008-09, which dampened both the business and consumer markets’ interest in a new mobile audio service and the venture capital funding market that was meant to support the company with fuel that we Maine investors needed to supplement our capital. At the end of 2009, the company’s starting driver had had enough and announced he was going back to Silicon Valley to find a new car to drive.
This kind of thing is not uncommon. Founding entrepreneurs get out of the driver’s seat for all sorts of reasons, some voluntary, some involuntary. In this case, the founder decided that going forward with the challenge of capital markets, unrealized objectives and disappointed investors was not going to bode well for him, economically or professionally.
Economically, he was right. Failed ventures often create hardship in terms of value preservation for all growth venture stakeholders. While investors work hard to develop incentive systems to retain some founders or managers, it’s not always possible make the case that staying on makes economic sense.
So, this situation left investors with few options, the most obvious being to shutter the company and sell the assets for what we could realize. Normally, I might resign myself to this reality. In this company’s case, however, I decided to step up and see if I could play a more active operational role to bridge the company to a better path, whether a higher-value exit or, preferably, new financing with a new leadership team. So, I sold my co-investors on the notion of my taking an interim CEO role to see what I could do to rebuild value.
Taking the lead
Like disappointing outcomes, venture capitalists deciding to drive abandoned cars they helped to build happens more often than many might think, particularly with active early-stage investors who do more than pick stock and await returns. In my role at CEI Community Ventures, I’ve helped draft business plans for most of the nine companies the fund has backed; Foneshow was one of these and I feel particularly strongly about its value proposition and place in the market. And having played different operational roles throughout my career (in software, marketing and general management), I didn’t feel as helpless as I might otherwise.
So, what happens next? I’m working with the company’s investors and board to rebuild the team and plan with a view to raising capital in the fall from angel investors and/or venture capital funds (Interested? E-mail me). The investor group is working with the company’s other co-founders, who, in contrast to the business development-oriented departing founder, carried the technology development side of the equation. We’ll be looking for additional technology, management and business development leadership (Interested? E-mail me). Clearly, I would not take this on if I didn’t believe in the product-market opportunity and the prospects for funding, even in this post-recessionary, pre-expansionary economy.
As luck would have it, one of Foneshow’s most salient competitors just got a $6 million round of funding from one of Silicon Valley’s most prominent and successful VC investors, just weeks after I’d made the case for jumping in. To me, this was a market-affirming event for mobile interactive audio signaling, both a reemerging ad market and a reemerging venture capital market.
Maybe I’m delusional, but I feel a great sense of optimism even in the face of the challenges of this transition. While I’m accustomed to losing and walking away, I could not see letting this one go so easily into that dark night. There’s plenty of risk here and I make no guarantees that I’ll find that bridge to more open road. But for now, the car’s still running and it’s a good day for a drive.
Michael Gurau carries a lot of business cards these days, including as president of CEI Community Ventures in Portland. He can be reached at mhg@ceicommunityventures.com.
Most Recent
Most Recent
Comments