Things were looking dire. We were rapidly running out of money at Zendesk, and I was rapidly running out of money personally.
I did not want to go back to consulting and neither did Alex or Morten, but soon we would have to look for some better-compensated alternatives. Part of me wondered if that was the more responsible thing to do. I had another infant daughter at home. Baby Erna was born two months after we launched, and I needed to provide more stability for my growing family. Mie was supportive of my chasing this idea, but living without a paycheck had its limitations. Diapers are expensive.
Going For Broke
I wasn’t alone in feeling torn between choosing to have this completely break apart or committing everything to finding a way forward. Alex, Morten, and I all shared an understanding that maybe this was only temporary, that maybe it would last only a bit longer, but at the same time we weren’t ready to let it go. I always found myself saying, “Let’s give this another month and then we can think about alternatives.” They always agreed.
But it was a very borderline time for all of us. You are balancing two extremes: one, you are completely invested and narrowly focused and wholly dedicated; the other, you are hyperaware that there is very little chance you will make it. You are at odds with yourself, consumed by both ecstasy and fear. You have no balance, but you have found meaning. This is the every day, every moment dilemma of a startup.
And, then, suddenly, it looked like our problems could be solved. A friend of Alex’s introduced us to an experienced Danish angel investor who was very interested in funding us. This was the real deal—an investor with an apparently good track record and many connections. He gave us the impression that he wanted to invest up to $500,000.
“Let’s not make this complicated; let’s make it easy,” he said. It seemed too good to be true. And then it became clear that it was. It’s customary for prospective investors and VCs—both professional and amateur—to ask for materials to validate your business. After all, they are giving you money that, statistically speaking, they will likely never see a return on, and that they might lose entirely.1 This investor was no different. He was not shy about asking us to produce copious details on how we fit into the competitive market, addressable market, go-to-market plan, and so on and so forth. He wanted a lot of the usual stuff that is purely fantasy so early in a startup’s life.
I’m very disappointed you can’t do the basic things that I am asking for.
I produced all of these materials, some of which we had and some of which we had to create or make up, working diligently to appear professional. Still, he kept on coming back, requesting more. At some point I became really confused. I thought we had produced everything he needed, and I was very unclear about what he really wanted. I wondered if he even knew what he wanted.
One evening, he called while I was out shopping for groceries. I was in the dairy aisle picking up milk and not entirely prepared to be grilled.
“I’m very disappointed you can’t do the basic things that I am asking for,” he said.
He was making it clear that he felt I was not capable of doing my job. I don’t remember the point of the call or what information he asked for, other than his trying to question my abilities and make me question my abilities.
It was a tense conversation, and on the way home from the market I really started to doubt myself. I felt that I was letting Morten and Alex down because I was failing to manage the investment situation. And in many ways I felt that investor had deemed me dispensable from the founding team.
An Important Decision
But during a relatively sleepless night my confusion gave way to clarity. With each of the unnecessary demands, it became increasingly obvious he was exploiting the situation — trying to weaken us to gain more negotiation power. He knew we were running out of money, and he aimed to stretch us and tire us out as much as possible. I felt like he was messing with my mind and trying to take advantage of us. And it made me super uncomfortable.
We were facing a huge conundrum. Do we continue with this charade and do the deal with him—someone we didn’t trust—to keep afloat? Or do we turn away from the deal and face sinking on our own?
The next morning I approached Morten and Alex: “We can’t do this. It is going to be all wrong.”
Taking money comes with a price, and it can take you in directions that aren’t always healthy. We dodged a bullet by saying no to that money, though it wasn’t an easy decision. Mikkel Svane
They agreed. They also felt his vise-like grip exerting too much pressure. Alex, who had the original relationship, agreed that he would tell him that we weren’t ready to take investments.
The investor was offended; he took it personally. And in a way it was personal. We did not want to be controlled by someone who was aligned with what was best for him but not best for us, for the company.
I learned an important lesson in this experience—one that influenced all of the investor decisions we’ve made since then. There is a vast spectrum of investors. Professional investors are extremely aware of the fact that they will be successful only if everyone else is successful. Great investors have unique relationships with founders, and they are dedicated to growing the company the right way. Mediocre and bad investors work around founders, and the company ends in disaster. The problem is, early on many startups have few options, and they have to deal with amateur investors who are shortsighted and concerned only with optimizing their own position.
As so many startup founders know, it’s really hard saying no to money, but sometimes it’s the right thing to do. Taking money comes with a price, and it can take you in directions that aren’t always healthy. We dodged a bullet by saying no to that money, though it wasn’t an easy decision. We had no cash, we were back where we started, but we didn’t look back. Rejecting the offer carried the same relief you feel when you break off a bad relationship. We were free and ready to move on. Poor, but happy.
Editor’s Note: Excerpted with permission of the publisher, Wiley, from Startupland: How Three Guys Risked Everything to Turn an Idea into a Global Business by Mikkel Svane with Carlye Adler. Svane is founder, chairman, and CEO of Zendesk, Inc., a global customer service software company. Adler is an award-winning journalist and coauthor of several bestselling books. Copyright (c) 2015 by Zendesk, Inc. All rights reserved. Startupland is available at all bookstores and online booksellers.