Comments on: How to Deal with Skeletons in your Closet

By: How to Deal with Skeletons in your Closet | CloudAve

How to Deal with Skeletons in your Closet | CloudAve — Sun, 13 Dec 2009 04:56:06 +0000

[...] not only lose the deal but you’ll lose a friend and contact (along with your reputation).UPDATE: @BSierakowski wrote to me on Twitter and pointed out that I didn’t really deal with how to begin to reveal your [...]

By: Casey Allen

Casey Allen — Sun, 29 Nov 2009 23:27:23 +0000

"It is important that he/she sees your positive attributes first...Did you hear that he was an entrepreneur?"

Nice. Love it.

Truthfully, I avoid the e-word like the plague because chicks assume that I'm independently wealthy. Little do they know. I'd actually pay extra to be able to filter out "daughter of an entrepreneur" on Match.com.

By: Guy

Guy — Sun, 15 Nov 2009 20:37:06 +0000

Elephants are better than skeletons, no doubt about that…
However, the fact of the matter is that VCs need very little to say no. Any reason would do – and they'll just move on to the next deal. There's nothing to be mad about here, its perfectly natural – think of yourself going into a shop to buy T-shit for $10 – even if the shirt is absolutely stunning, if it has one small defect or stain you won't buy it. Now think about a mulio-million dollar deal…
Your company needs to be absolutely amazing, or that you need to be absolutely amazing in soliciting capital for a deal to close. Amazing will triumph skeletons to a degree, but very good will not.

By: abirbhattacharyya

abirbhattacharyya — Sat, 14 Nov 2009 15:35:49 +0000

Thanks Mark , keep up the good work on this blog. Finally Brad & Fred have real competition. You guys are tied for #1.

Best,
Abir

By: mpstaton

mpstaton — Fri, 13 Nov 2009 21:10:44 +0000

This is a pretty good tactic. Intuitive, but just because it's common sense doesn't mean everyone would do it. I think I accidentally did this. I also just left a few minor things in the schedule of exceptions….

By: awaldstein

awaldstein — Fri, 13 Nov 2009 14:49:15 +0000

Got it.
From my perspective Mark, if you are spurring me to spend my time engaging with you and the topic on your blog, and my comments add depth to the discussion, then this is a win win.
Thnx.

By: msuster

msuster — Fri, 13 Nov 2009 14:42:14 +0000

Well, in your case it is actually not out of the ordinary for FFF round to have anti-dilution. But usually when you're in the VC round they don't want to pony up their large $$$ to keep pace with the investment. And usually when the CEO talks to them they step back from anti-dilution.

Regarding how to know whether it's an elephant or a skeleton ... I think each team needs to sit down and say, "what would I reasonably be thinking if I were on the other side of the table."

Example: 4 of you worked together at a previous company and only 3 of you are together at this company. The missing person is the former CEO. Do you think the VC meeting you will be wondering where the CEO from your last company is and why he didn't join? Elephant.

By: msuster

msuster — Fri, 13 Nov 2009 14:38:06 +0000

Yeah, it's true that this issue is always case specific and in a blog it's hard to be able to cover each case so you try to abstract as a rule. And as a rule I think these “skeletons” are best covered early (e.g. pre-partner meeting) but not at the first meeting.

FWIW, the felony was egregious.

By: tomblondi

tomblondi — Fri, 13 Nov 2009 12:56:51 +0000

Another good one, Mark.

Many times it is hard for an inexperienced entrepreneur to know what an Elephant or Skeleton actually is to a VC, isn't it? Like an in-law who invested in the FFF round with that pesky little clause about anti- dilution in perpetuity. Is that a big skeleton or a small one? Not sure how they know to fix that before they go big game hunting. Is the size of the elephant or skelelton critcal?

By: awaldstein

awaldstein — Fri, 13 Nov 2009 11:34:08 +0000

Mark, an important discussion.

I disagree on this one. Not that there are some things better left unsaid but that you need more specific and less general rules to address them. In fact, I think you need not a rule but some guidance on most of these to help parse them out.

-Felon status. Not relevant unless egregious. I agree.
-Infrastructure rebuild. That a tipping point for a raise and opens up positive discussion on moving to open source, more scale and so on.
-Loosing the URL for your tradebrand that drives SEO or partner linked traffic. OUCH! There are strategies to overcome that show some chutzpah but can't imagine not talking about.

So, I agree. Be smart. Be strategic because, duh, you are selling yourself. But don't be stupid and have to tell someone later and then they will say, "why didn't I know sooner, what else didn't you tell".

I like to look at it under the old hack of "Can you turn that bug into a feature" or 'Can you turn that problem into an opportunity?" Of course there are lots of corner cases and many shades of grey.

Its the kind of thing my clients talk to me about and I address each one individually.

Thanks for raising this. At its essence its about being smart enough to think these through one by one.