From £4 Million to Broke: This is Our Startup Horror Story
By: Kev Price
Tags: Startup, Entrepreneurship, Tech, PPC Marketing, Advertising

It’s time to make this story public. Jo and I have dined out on it long enough and I think we have told the people closest to the company face to face now. So we can now write about it.

Many of you will have known that Jo York and I ran a business for a couple of years called Reframed. I won’t go back over what Reframed did, but a lot of people thought it was cool, we had attracted some very high profile non-exec directors and mentors and around £500k in investment over the years.

Yet, a few weeks ago we had our penultimate board meeting. We didn’t know at the time, as it went brilliantly. Neither did we know that a month later we would be discussing giving our investors opportunities to save the company from going under.

At that board meeting we celebrated having £350k investment on the table at a £4 million valuation. Which was, at that time, considered to be the ideal round of investment for us.

Two weeks after that board meeting we had no staff.

Throughout this story I will remove most individual’s names and company names. Many people suffered from the fallout of what happened and that is their story to tell. A name I can’t really remove from the story is Simon Wood.

Simon Wood took up an office in the same building as us, on the same floor. He became known to us in the office as ‘the shouty man’ as you could always hear him on his phone in a Dom Jolly-esque way. He was running an advertising company, ran Adwords training, and we were told by others in the building that he was ex-Google.

Early on in his time in the building a member of staff got chatting with him and told him what we were doing. He mentioned that he was running a conference and was wanting to ‘Reframe’ it. So Simon became a client of ours.

He also wanted to speak with me about advertising — we had assumed that he was wanting to advertise on the site. But after a 15 minute discussion I found out that he ran his own ad network and was interested in managing the adverts on our site.

Up to this point we had been unsuccessful in getting adverts onto Reframed in a way we were happy with. We’d spent over £2k and 3 months paying someone to try and get it right.

Within 40 minutes of our meeting Simon had adverts displaying on our site in the way we wanted. Nice one! We had found our ad supplier.

We sat down with him and worked out the deals we would offer and how much capacity we each had to display ads and sell ads.

Simon took on the rest of the top floor of the building with desks and brought in staff to sell ads on Reframed.

Every day, many times a day, he would come in and interrupt us proposing one deal or another:

“Wonga?”, he’d ask.

“No, not on our site”

“E-cigarettes?”

“Perhaps, in the right context. Not 100% comfortable”

“Virgin want an exclusive deal and will pay up front”

“Nice work”

And so went our days of being interrupted by our ad supplier, but it was important to prove the financial model as we were going to raise investment on it — it was why we had delayed raising.

He had a quick turnover of staff, with only one or two that stayed more than a week.

One day he approached us and said he could see the way the business was going, he was excited about the partnership and that he would be interesting in investing. It would essentially be backing something that he had influence on the success over. He asked what the least amount of investment we would accept would be.

£10,000

We said that we’d be willing to do the paperwork for £10k as it wouldn’t be a bad place to start the round, anything less than that would be better for us if he did it through the crowdfunding platform.

We hadn’t known that he had been running events and letting people know that he was an investor, having people pitch to him and things — we just knew him as the shouty ad guy so we’d never approached him for investment.

£25,000

He said he had £25k he’d be willing to invest. Brilliant — great place to start. It’s how we started our last round, Steve Pankhurst (Friends Reunited founder) put money in and everyone followed. We knew we could get more investment off the back of it.

So we continued to go out to investors, only now could let them know that we had someone committed and that we were proving the financial model. That the ex-Google ad guy was so sure of the model we worked on together that he was backing us himself.

A few days later he asked us to meet with him. We sat in a room and he went through all the standard investor questions you get used to being asked. He talked about the info that his wife, Angela Wood, would need to invest. Up to this point we had nothing to do with Angela. But from about this point she was added into our Slack channel to talk about the investment.

At the end of the meeting Simon said that he had other investments, that he used the same legal team as us and that he had a meeting immediately after this one to pull some capital out of another investment.

He ushered us out of the meeting room and ushered someone else in. He said he had already invested in that company and that she was asking for more.

Later that day Simon came into our office and phoned the legal team we both use. He talked to them about investments and pulled more capital.

£100,000

Simon now had £100k to invest.

We were looking for £350k total, so £100k is a big chunk and covered the ‘new money’ we were going to need to release funds from our current investors.

All looking good.

Interruptions continued for a while. Simon kept coming into our office with either questions as a client, as an ad-supplier, or as an investor.

We had been coaching him on investment strategy, on what our equity share meant, and what the ideal round would look like from our perspective.

I’m not sure exactly, but I think he said he sold a house and managed to find £250k to invest in us.

£250,000

Next was an offer of £250k from him, at a valuation we were happy with. He kept trying to push the valuation up (better for us, worse for him), but we weren’t comfortable with it. We kept negotiating back down in order to protect his investment and give us somewhere to go valuation-wise in the future.

One thing Jo and I always do our best to do is be reasonable in business dealings, we look for a way in which everyone can win.

So, we got term sheets for the remaining £100,000 of the money needed from our current investors.

£350,000, £4M valuation

We were in a brilliant position. We had £350k offered (from Simon and Angela Wood, plus incumbents) at a £4 million valuation. This left us with enough founder equity to raise a proper next round, if the financial forecasts stacked up.

We had our board meeting on the Thursday and pretty much all high-fived — life was good.