VCs Bail On Signed Term Sheets, Leaving Entrepreneurs High And Dry

alone in a crowd

Photo: krypto via Flickr

We’ve heard three stories in which lead investors bailed on rounds after term sheets were signed.The first upset came last week from a WeWork Labs company. The startup’s lead investor pulled out of a $500,000 round.

Another entrepreneur raised between $3 and $4 million and thought he was in the clear. The money was invested, but there was a draw-back clause on the term sheet.  The investor retracted all of the money 30 days later.

Today, we heard from Rand Fishkin, cofounder of SEOMoz, who had $24 million taken back after term sheets were signed.

Fishkin says “everything was signed” with his investor in August.

Then the market went nuts. Then Fishkin’s investor began bringing up concerns. The concerns sounded a lot like excuses. He cited June/July revenue, which was $70,000 off its mark, even though revenue for the year was up. 

After the confidence-crushing meeting, Fishkin was told there would be no deal.

He’s not sure why the deal fell through, but the shaky market is a pretty good guess.

“As anyone who follows the stock market knows, the beginning of August was a rocky period,’ Fishkin writes. “It appears to have stabilised more recently, but it could certainly be that, as in 2008 when funding suddenly dried up, the market’s crashes took their toll on the investor’s confidence or that of their firm’s LPs (who said something like “don’t make a capital call right now.”).”

For now, Fishkin’s confidence in VCs is crushed. “It’s like when you go through a breakup, and you think, ‘I’ll never date girls again,” Fishkin says.  “But then I met my wife. So, you never know.”

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