[This is part two - read part one first]

Now, you have to know that, while they were doing well top-line-wise with our revenue (we were close to revenue neutral with a negative burn rate of only a few grand a month), they were definitely pumping red ink ($100K+/month) and on a growth hiring curve. And they’d just moved into bright shiny new offices - we were in a B Space dump that was priced as C Space.

So there were new-hires going to these parties and seeing these great spaces (great example, eh?).

On the morning of the 22nd the CFO got a fax from the term-sheet VC saying that they’d decided to pass. After an emergency board meeting via con-call the current VC said that they’d hold on the last tranche until another term sheet was on the table.

It is now noon on the 22, the company has half of January’s payroll in the bank, and is slated for $100K of parties in the next week.

I spent an hour leading the (younger than me) Canadian management through some contingency planning to get us through Feb so we’d have at least a run at another term sheet. Look, nothing happens on Sand Hill during early January. But in Feb you can actually kick some butt because people have finished playing with their new Ferrari’s and are back to work with credit card bills on their mind. And those boys get paid by putting money to work.

I realized, about 3pm, that I didn’t have the room with me. Someone gently told me that I had a bad premise: we could not cancel the parties.

I was dumbfounded. But I quickly rallied and assumed that we’d already paid 100% so our cash-on-hand as of 1/Jan was much better.

Gently, again, someone told me that no, we’d paid a PO for 50% up front, but that we’d pay the estimated other 50% with an Amex card at the end of each party with a final settlement in mid-January.

I argued, and I can argue pretty forcefully, that this was, well, I started with “injudicious” and moved to “crazy” and finished up with “criminal.”

Couldn’t move them. But I did make them very uncomfortable with me. As you might imagine.

I went to the first party around 6pm, but couldn’t even bring myself to have a drink or a snack. Almost a hundred people, only a dozen knowing that we were partying away half a month of much needed payroll. New hires who were excited to come on board a company that would probably fold before their first paycheck got through the process.

And there I was, sitting the corner nursing a diet Coke, no longer an officer of the company and bound by confidentiality rules. So I decided I didn’t need to be there. I got up, checked out of my hotel, went to the airport and made my way home - three flights instead of a direct, but I was home.

I heard that the New Years party was even nicer than the Xmass party, with more people attending.

We never got a new term sheet, never got the tranche. I did convince them to freeze development and let me put our tech guys on the street as consultants so we got through another three months. But I couldn’t get them to leave their fancy office, fire unproductive sales guys, nor drop back office staff, so we never got revenue neutral.

There are a lot of take home lessons here, but, really, it should be obvious you do not party with your VC money. Especially not before it is in the bank!