Part II - May of 2003
- After a lot of hard work in early 2003, the company was making some decent progress with large enterprise customers like Societe Generale, Verizon, and other large customers and had gotten some of the customers to renew their annual service contract. (FYI -- Kefta sold an annual service contract) The company needed additional investment to continue to scale sales. Kefta negotiated with its current investors and managed to structure an internal round of $2,000,000 investment. The investment was going to be led by Amicus again. Softbank agreed to participate if and only if Amicus would. Softbank didn't want to carry the financial risk of the company alone.
- There were a bunch of partner meetings at both Amicus and Softbank to get the required approvals necessary to complete the round -- and ultimately Philippe was successful. The round was schedule to close in May 2003.
- This is where the story gets really interesting.
- I remember well the call at 10:30PM from Michael Samols of Amicus -- the day before we were scheduled to close the financing. He said, "I've got cold feet and I'm not going to close tomorrow". I could tell by the tone in his voice that this wasn't negotiable. I'm not sure what exactly caused this to occur but for any entrepreneur who has been in this position -- it sucks. I called Philippe.
- On Friday, Philippe had a board call. The board consisted of Brad Feld, Michael Samols, Michael Oiknine and myself. Without the $2,000,000 the company was in a terrible position. At the time we had more than 10 employees, but the company didn't have the cash to meet payroll the following week. We decided to take the weekend to see if an alternative financing path to save the company existed -- and if not, we all agreed that on Monday morning we would start acting on behalf of creditors and start to wind the company down as gracefully as possible. Again, for context, there were lots of companies going bankrupt from the crash of the bubble. In fact, Softbank was so adept at dealing with this that they even had a consultant who specialized in liquidating the assets of failed dotcom companies named Marty the Cleaner.
- I had convinced one of my partners from abuzz, Shaun Cutts, to invest in Kefta's B round. He had put in around $100K in that round. When the company was in this aborted financing crisis, Shaun agreed to lead a group of investors in creating a cram down "save the company" investment. He ultimately invested an additional 130K into the company at a very low pre-money valuation. The founders including myself each put in approximately $20K and Softbank agreed to put in 40K. All total, Philippe and I managed to raise about $250K that would be put into the company. However, the investment was contingent on Philippe being able to get Amicus to sell their stock back to the company and approve the financing.
- You would think that after pulling out of the investment at the 11th hour, that Amicus would act contritely and would gracefully write off their investment and step off the board so that the entrepreneurs could carry on with what the VC had determined was a pointless effort. That is not what happened.
- Due to confidentiality reasons, I can't tell the whole story here....suffice it to say that it was interesting to live through and experience. Ultimately a deal was reached whereby the company would buy back Amicus preferred stock at a low cost on the dollars they invested.
- A small amount of money came into the company and the founders lived to fight another day.