How a bad VC deal destroyed my multimillion-dollar company

September 20, 2024

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“This all looks pretty normal for a VC deal.”

That's what the lawyer told me as he flipped through the pages of the extensive document. The long list of terms sounded strange to me, but he was right. The deal and its jargon were and are typical.

Unfortunately, by signing this “standard” contract, I lost my business, and you – or any capable, successful entrepreneur – could face the same fate.

Sitting at my kitchen table, I developed a disruptive model for a $20 billion industry. I had the courage and the hubris to believe I could do it. When the consultants saw that I was forecasting $10 million for the third year, they laughed and said I was crazy. In the third year, we made $22 million.

I developed the model, popularized the supply chain, inspired a team, and developed the technology, all while securing and maintaining exclusive, multi-million-dollar, multi-year contracts with major brands like AT&T, American Airlines, Citi, Chase, and State Farm. I led the company to #8 on the Inc. 500 list of fastest-growing companies and #1 on Crain's Fast 50.

I was living my dream – until it turned into a nightmare when I raised the wrong venture capital.

The venture capitalists used all sorts of tricks to prevent me from bringing in new money. They sold the company in the dark of night without my knowledge. When they finally told me it was sold, they said I had three days to agree and asked me not to give them any trouble. I didn't agree, but I gave them trouble. I went out and got an offer from a better private equity firm for $3 million more than their offer; they still refused to sell me the company. I tried to fight them, but they were backed by billionaires who told my lawyers they would “love nothing more than to go to war with this woman.”

I was devastated. So I decided to build a better system for funding entrepreneurs and share my experience with as many founders as possible.

Here are the three strategies I wish I had known before I lost my business.

Related: We can't rely on venture capital to build a fair and thriving entrepreneurial economy. Here's what we can do instead.

Be creative

Consider every alternative form of capital before signing with PE.

Raise capital. Find a profitable business to acquire, then contact an SBA lender for a 7(a) loan.
Equity is your most valuable asset: The most expensive debt is still cheaper than equity. Before you give up any of your equity, take out a personal loan, put up a home or car, or personally borrow money from anyone who will give it to you.
Think of CVC. Corporate venture capital has expertise, vast infrastructure and contracts either in-house or within supply chains.

Be a detective

You can't divorce a bad VC – so take your time choosing your investor.

Before you spend a dollar, take the time to find out everything you can about the person you're getting into the proverbial “bed” with. Ask for a list of all the companies they've funded, compare it to public records, then pick up the phone and talk to the founders of the portfolio companies. Research the companies that aren't listed on the website and talk to those founders.
Find out where the money is coming from. The people you talk to are probably former accountants hired to manage the fund. Meet the people with the money. Talk to them. Find out what kind of people they are. Make sure you want them in your company. Get the names of all the GPs and LPs and check them carefully. For as little as $99, there are many services and websites that will do bad actor checks for you.
Does the fund have any previous lawsuits? Search the Case Law Database to see if it has been mentioned in a lawsuit. I learned too late that one of the fund's billionaires who had stolen my company had sued the Obama administration, seeking to deny his female employees access to contraception through the Affordable Care Act because of his religious beliefs. He should never have been on my cap list because our values do not align.

Related: 3 reasons why lack of funding could be your startup's secret weapon

Be your own “advocate”

The security agreement cannot be delegated. It is your responsibility to take ownership of it yourself and take it seriously.

Go through every contract line by line and word by word. Learn the terms. Make sure you understand everything. Know the meaning and impact of every word in that agreement. Liquidation preferences, block rights, redemption rights, entry rights, drag-along, pari-passu, participating preference rights – these are all loaded guns.
Get a second opinion to make sure your lawyer is right. Take advantage of free local resources for entrepreneurs. There are 3,652 of them at helpforfounders.com.
Keep in mind that it's unlikely you'll be able to defend yourself against VCs in court. There are no precedents for founders who have successfully defended themselves. Most founders who need venture capital don't have the money to fund a lengthy trial, especially against the people who need it.
Say no. The right partner will want you to feel comfortable. If they don't, walk away. It's better to lose the VC than lose your business. Trust me.

There were so many things I didn't know before I signed. The mistakes I made led to me being taken advantage of. It wasn't until I got burned that I realized the venture capital industry is broken, works against entrepreneurs, and favors those who are rich, white, and male while overlooking most founders and necessary innovation. I hope that with these lessons and resources, the entrepreneurs reading this have an advantage over bad venture capitalists.