Founder’s Co-op has been an investor in BigDoor since shortly after its inception in2009. The CEO and co-founder of BigDoor is Keith Smith, and Keith and I have been friends for going on seven years now. It is a friendship forged in the board room, sales pit and the business trenches – yet cemented over drinks and political debate. I think there is a good lesson to be learned from Keith’s story over the past couple of years, so I thought I’d tell it.
The economic tsunami of 2008 left Keith and his company in rubble. The company that once had annual revenues north of $78MM and significant monthly profits that placed its worth well over $100 MM in market value was sold in April 2009 for for pennies on the dollar. In an attempt to save his company, Keith mortgaged his home and poured every last dollar he had into the company. Despite those investments, all of the proceeds of the sale went to the company’s lenders and Keith’s personal fortune went the way of his company, south….way south.
Shortly after the company he had spent a decade building and running Keith was offered the job of CEO of an Internet company located in the Midwest doing double-digit millions per year in revenue. He then began debating whether to take this job (and go work for someone) or begin again and start his own company. When he sought my advice, I told him that he should do what’s right for him – that he’s captain of his own ship and needs to make the call about what direction to take his career. I told him there’s no shame in working as a hired gun for someone else.
Keith took a trip to Cancun with the plan that he would spend a week on the beach to make a decision about what would come next. Rumor has it that he drank a fair amount of tequila and partied hard on the beaches for a week. When he returned to Seattle, he declared he wants to start a company. He had a vague notion of starting a company focused on offers; kind of like Offerpal but aimed at non game sites.
I told him I’d like Founder’s Co-op to lead the financing. My rationale was simple: I wanted to bet on Keith. I think he’s one of the best CEOs I’ve met and personally he is one of those people that knows how to make money. He’s also someone that I’d never want to bet against. My assessment had much more to do with the attributes of Keith than with his new business. I just know he’s smart enough to figure it all out – and now he has a chip on his shoulder to prove to everyone that he can do it again.
We decide to go to Las Vegas for the weekend and try to pencil out a deal while drinking by the pool. The negotiation was none too hard. We both put our key limitations on the proverbial table – there’s a lot of trust between us and neither of us tried to over optimize the deal. We left Las Vegas with the following deal:
Founder’s co-op leads a 500K investment in Big Door
- 250K at a low valuation
- 250K in a convertible note that will be done in Nov 2010
In November 2009, Keith & Jeff and I returned to Vegas for the annual sojourn to pubcon . On the plane, I looked back to see Keith and Jeff in a deep conversation. Jeff twisted around in his seat talking intently to Keith in the seat behind him – who is furiously taking notes. Upon landing in Vegas, Keith & Jeff tell me they’ve decided to alter the direction of the company. I asked them lots of questions and their thought process made sense. I encouraged them in their new direction but I told them to get a customer. Customers will validate whether their change makes sense.
Also in November 2009, Brad Feld (Foundry Group) and Keith met for the first time at the TechStars in Seattle event. I facilitated an introduction over a beer and a burger.
In January 2010, Keith closed his first customer on the revised strategy: BuddyTV. The sale of this customer is a milestone for the company. Around this time, my confidence in Keith and the plan he was pursuing began to increase significantly. I began to see the wisdom of the change in direction that Keith and Jeff had made. I began making introductions for Keith to a bunch of local and non-local venture capitalists. Keith and I both knew that the company is going to need additional capital. Fortunately, a number of the venture capitalists got interested in the company.
In February 2010, Brad Feld started to engage more with Keith. They began to develop their own relationship. . Keith closed his second customer: the Cheezburger Network. Around this time a few other venture capitalists started to request 2nd meetings with Keith and are began to express serious interest in the company –but the chemistry and momentum and fit was nothing when compared to Foundry Group.
In April 2010, Brad and his partner Seth came to Seattle . We had breakfast and then Brad, Seth and Keith had a 2 hour meeting with Keith. A few days later, Keith calls me from the SFO airport and tells me he ran into brad at the airport and Brad informed him that he will not be investing. Brad really liked the company but for a few reasons couldn’t get himself off the fence to actually invest.
Keith was a bit surprised and disappointed. Frankly, so was I. Up to that point, the chemistry and momentum between Brad and Keith kept pointing to a likely term sheet. I kept thinking that Brad would put a termsheet down but the valuation would be too low for Keith. I told Keith not to give up and to reach out immediately to Brad to tell him he made the wrong decision and I told him to get on a plane and get to Colorado. Keith reached out to Brad and Brad was receptive, so they setup a meeting for later that week in Colorado.
They meet at the Foundry offices for a few hours and by the end of the meeting, Brad had tentatively agreed to change his mind. BUT, Brad wanted to discuss the investment with his partners. I encouraged Keith to keep the heat on and to email Brad’s partners and tell them how much he wants to do the deal with Foundry as opposed to other investors.
I also told Keith he needs to work on a backup plan. Two weeks later Brad agreed to invest. The deal closed 21 days later (i.e. last week).
The big lesson to learn here is; never give up. Whether you have a company that fails, or a deal that falls apart – don’t get discouraged, don’t give up, keep going.