Imagine: A venture capitalist arrives at work one day and sets down his Starbucks mug next to a stack of business plans that tower over his inbox. As he begins sorting through them, out flutters an envelope containing a check.
The VC leans back in his chair and reads the handwritten note accompanying the check. “Sorry, sir, that we couldn’t return all of your money, but we felt it best to cut our losses — and yours — while we could. Thank you for your support.”
Maybe the venture capitalist will faint from the shock. Maybe he’ll just chuckle. Perhaps he’ll tack the note and the check on the bulletin board for everyone to see. After all, it’s not every day that a startup gives money back to its early investors rather than taking it all to the graveyard.
So, does the move by the founders of Kibu.com to return some of its $22 million (US$) in funding to venture capital stalwart Kleiner Perkins Caufield & Byers represent a sea-change in how e-commerce startups operate?
Does the refund announcement that came earlier this week from the teen advice and shopping site signal a sudden awareness that companies can and do come to their senses before every penny is lost? Does it fuel a new appreciation for the reality of doing business, rendering pipe dreams obsolete? Let’s hope not.
Kibu’s statement said the company recognized things had changed even in the eight months or so since it went a-pitching in Menlo Park. What changed most, of course, are the capital markets. If Kibu had gone back for more venture capital or tried to make a run at the public markets, it would most likely have received a lot of cold shoulders.
So Kibu decided to pay back some of the cash it got from KPCF and others. That drew applause from some analysts and no doubt pleased the VCs who didn’t get the big payday they had hoped for — but weren’t completely bankrupted either.
Not So Fast
But I say that’s baloney, and it’s absolutely no way to run a business online or anywhere else. You realize your business plan isn’t going to work? Tweak it. Change it radically. Make it better.
Your investors won’t let you in the door? Find new ones. Look for a partner outside your direct market. Track down someone who never thought of running an online community like yours, but who could undoubtedly benefit from it.
Come up with new revenue models. Charge for membership. Lay everyone off and start from scratch. Hold a bake sale. Rob a bank. Okay, don’t rob any banks — but don’t go away quietly, either.
Imagine what would happen if every company that faced the prospect of losing money while it got its feet under it were to give up. It would be a lonely business world with nothing much to buy, sell or write about.
Sorry Won’t Do
It’s not clear from the Kibu statement, but it’s easy to imagine the founders feeling a bit bad about taking all that money from their investors only to have no prospect of giving them a return. If so, their regret is slightly pathetic. Venture capitalists don’t need the sympathy and understanding of entrepreneurs. They eat them for lunch.
Besides, anyone who is a serious player in the VC game fully expects to lose everything — some of the time. That’s what makes it the thrill and challenge that it is. Those who are good at it lose everything just once in a while, and the big payoffs more than make up for the losses.
There is one logical reason for taking a wad of cash back to the VCs. Maybe Kibu’s founders have other business ideas they want to pursue and don’t want to get themselves banned from board rooms and elevators and pitch brunches for the rest of their born days.
Go Down Swinging
But I have some advice for Kibu and any other company looking at the stark possibility that everything might be going down the drain: If I were thinking of investing in you, I’d much rather know that you refused to give up. That you had to have your fingers wrenched from your keyboard. That your partner drove around with your servers in his trunk for a week straight to keep them from being repossessed. That you sold your skateboard and ate only macaroni and cheese to make the cash last a few more hours.
I’d much rather see you fight than throw up your hands and call it a day before the sun is even thinking about setting. You may end up in the graveyard anyway, but I would rather see you making a heroic effort than going gently into that good night.