Cash inefficiency. When we invested, the company had about $60k of MRR but was burning $170k a month. It was an oversight on our part to get involved with a business that burned nearly $3 for every $1 of revenue, but we definitely learned our lesson (and learning is expensive). Today we wouldn’t look at any company burning more than $0.50 for every $1 of revenue, and generally we want to see a revenue to burn ratio better than 3:1. Many other VC have a similar mantra, so keep the burn ratio in check.
We avoided layoffs. It was obvious we should have cut expenses and done a real round of deep layoffs, but instead the plan became to ‘grow out of the burn’. We never did. There was too much concern for the impact to culture and of course growing out of burn when a business isn’t performing is much harder to do than right-sizing the burn.
A merger didn’t work. With so many mistakes made along the way, the company was forced to merge with a larger but similarly weak peer. Given our inaction to fix things sooner, the merger was the least worst choice of many bad options. Of course, smooshing two underperforming companies together does not make a strong company. Ultimately all the equity holders lost everything and the lender is going to struggle to achieve recovery.