“Going for broke.”

When it comes to entrepreneurship, there are several truisms that immediately jump out at you -

• Most (almost all) entrepreneurs fail the first time.
• Many of them fail the second or third time as well.
• The winners are the ones who kept going.

Coupled with the fact that almost all businesses, large or small, start out with capital raised from friends and family, and you end up with an interesting dilemma – how do you raise money the second time?

I can answer this from a couple of perspectives, the first being my own. Depending on how you count things, this is probably my third startup. The first, known only by the quizzical nomenclature of 6169171, was an amazing flameout. The second, NaTel Communications, Inc., I’m in the middle of selling off – for something very close to liquidation value.

At the height of our hubris in the 616 days, we raised $120K in a little less than 6 weeks. Couple that with in-house money (about $50K), and three of us working largely unpaid for almost a year, and the total business loss was easily $250K – which I gather is typical of a tech-company flameout.

What happened?

Pretty much everything you can imagine.

• Our financial consultant turned out to be wanted by the FBI for fraud.
• Our first major partners ended up disclosing (after signing a contract, mind you) that they were already in partnership with LG Electronics, and wouldn’t break the contract unless we provided them with $60K per month in operating capital. We didn’t even have the budget to sue them.
• Our CFO ran off with our business plan and second major partnership, and set up a directly competing business.
• Our accountant, although brilliant, disappeared for months at a time, and never finished the asset restatement. (Mind you, we never got a bill, either).

The final nail in the coffin was when our primary competitor filed something very close to a carbon copy of our financing application, and received several million dollars in government-backed loans – which disqualified our application before it was even submitted.Backing up from the specifics, though – what went wrong?

• The deal was too big. Three-corner deals can be amazingly powerful, but expect 6-12 months to close them, and a failure rate 3 times normal.
• The initial financing was too small. We ran out of money every 60 days, and had to stop work while we raised more. Since we never raised enough, each cycle got harder to close, as investor confidence fell.
• We didn’t have the right team – it was geographically distributed, and we didn’t know each other well enough going in.

When I moved past this project, and started trying to move NaTel Communications, Inc. forward, I took a slightly different approach – I brought in a single “business partner”, who brought both money, and active participation. (While we tried to do that with 616, the partner we brought in there turned out to have neither money, or skills.)

There are problems with this approach – most of them revolve around the friction developed in a business environment where one of several “equal” partners has the final word on how every dollar gets spent. Opportunity cost is a bitch.

So what now?

Now I’m back at a startup with a way more exciting opportunity, and some major differences:

• BountyUp.com already has revenue (albeit small).
• It’s growing, and doesn’t need $billions to do so.
• I’m working on a project that I’m excited about.
• Outside of the business idea, we’re not getting creative – all the fundamentals (business model, financing, technology) are proven, long-term, industry standards.

Is this enough to convince would-be friends-and-family-investors to take a second chance, or will the adage of “Once burned, twice shy” hold true? I’ll let you know in a few weeks.

Some other things I’ve done:

• Paid it back. To date, I’ve paid back close to $20K of the initial outside investments into 616. While a long way from the total amount, I’ve made sure to pay back those who could least afford to lose it, first. (And yes, that’s out of my own pocket.)
• Told the truth. (Even about the embarrassing things, like getting suckered by a Florida financing con-man).
• Put more of my own “skin in the game”. Last time round, I was nearly flat broke myself, and tried to make up for my small financial contribution by working, literally, 16-20 hours a day. For a YEAR. In retrospect, this was bad for the business, and led to other mistakes, which compounded themselves.
• Focused on the product first, and the financing second.

Now it’s your turn to tell your story – what did you do to raise money? What did you do when you failed? Who came back for a second try?