Of course nobody wants their startup to fail, but the fact is that it happens and it’s a completely normal part of company building. Investors understand this and realize that failure is often a part of the process.
If your company has failed, make sure you go out of your way to let all of your investors know what’s going on. At Techstars, part of our Code of Conduct is to communicate with your investors at least every six months. Even if the news is bad, it’s important to keep the lines of communication open. Your investors have poured time, money and energy into your company, so they’ll appreciate your transparency—and be more likely to work with you again in the future. Ideally you’ll let them know how it’s going well before you let them know you’ve failed, as they might be able to help.
Many companies that aren’t working never formally get shut down. The founders go on to do other things, their email addresses change, and the failed business is never officially declared dead. They stop communicating with their investors and never give them any notice of the company’s outcome. Investors then eventually have to spend even more time and energy trying to track you down, and that’s not something you want either.
Instead of just going silent, it’s best to let your investors know exactly what happened. That way they can take the write-off and move on, rather than continue to carry something on their records with an uncertain status that appears to have little or no value.
In some cases, founders might feel like they’ve closed the loop because they reached out to someone in the investor’s organization to let them know the company failed. However, if that person is no longer with the organization the message will probably never get relayed. So it’s really important when you’re failing that you make sure you’re talking to the current leadership at the investor organization. You never know what might happen – some organizations, like Techstars, have entire teams of people that can help find a soft landing in some cases.
Failing is a normal part of startups. When it happens, the key is to shut down gracefully and communicate well with your investors. Not only is it the right thing to do, but you’ll also be leaving the door open for future interactions.
Let me know your experiences with failure and dealing with it in the comments.
Thanks to Don Loeb and Laura Kennedy in the Techstars corporate development team for reviewing this post. Laura chimed in that “The message is easier to deliver when you’re saying ‘thank you for walking with me’ rather than ‘I’m sorry I failed.’ It goes a long way in garnering support for the next venture.” Exactamundo.