Every company I’ve invested in has had a near-death experience and many are now going through this phase with COVID-19.
This article focuses on a difficult situation, finding a better home for your business assets, including, hopefully, future jobs for employees, when you are about to run out of cash.
If financing simply isn’t available, and you are faced with imminent shutdown prospects, find a new home for the business assets. Time is your enemy, so here are seven simple steps to do this when your back is against the wall:
Generate a list of 25-50 companies or partners you know or admire. Think broadly and creatively, don’t let yourself narrow the list too much too early. You never know.
Build a quick teaser email with highlights of your business, your progress, the assets you bring to bear (customer list, product, team) and the opportunity size.
Send out the list and call everyone with a direct message: “Due to COVID-19, we are looking to pick the best partner in the next 30 days to combine with.” In the best of situations you will have already created some relationship with a handful of these companies prior to this date.
See who is most interested and share any additional information needed for them to make a quick decision. Your best dynamic will come from having multiple interested parties.
Ask for offers by a certain date (14-30 days) and negotiate for the best possible deal.
Pick the partner offering the right terms for all stakeholders and communicate to your stakeholders how and why you chose the path you did, which might include probability of closing the deal, quality of the people, and how the economics benefited everyone involved. Legally, your obligation is to the common shareholders after creditors, but talk to your lawyers.
Use a simple set of documents to get the deal done ASAP. Remember that legal fees are your enemy. Keep the transaction, diligence and negotiation as light as you can in terms of lawyer time.
On the other side, you will have saved jobs, reduced your risk, and preserved or increased as much upside for investors as well.