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End of the Affair

The start-up is hemorrhaging money; the venture capitalist is getting antsy. As the relationship fades, is it time for "the talk"?

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Venture capitalists are from Mars, Internet entrepreneurs are from Venus. This much any boardroom observer could gather from the past six months, when the heads of some of last year's brightest Web start-ups -- Urbanfetch, PressPoint, Novix Media, Pseudo, and APBnews, among others -- pleaded for one more cash infusion, only to be abruptly dumped by their investor sugar daddies. But when the romance fizzles, how exactly does the breakup go down?

"Not well," reports Jerry Colonna, the venture-capitalist co-founder of Flatiron Partners. "It's sort of like any line you hear when someone breaks up with you: 'It's not you; it's me.' " Herewith, a few ways "the talk" is being voiced on Silicon Alley:

I think we should see other people. Chip Austin of i-Hatch.com must have 50 ways to leave his dot-com lover. "We say, 'The industry's too tough,' or 'We don't see the broader financing markets turning around for this thing soon enough,' or 'We aren't getting enough traction from your team,' " he says. The entrepreneur across the table is encouraged to find love somewhere else. But all too often, it's too late. "He's probably done a lot of upgrading already to try to adjust his burn rate, to get an extra two months. But investing takes 30 to 60 days just to get the legal documents in place. Even the best CEOs wait a little too long."

You're too desperate. "The worst funding stance is looking for money when you don't have money at all," Austin observes. "Cash is the most important thing now -- even more important than a business plan."

I don't know who you are anymore. "An entrepreneur would swagger into my office and say, 'I'm worth $26 million,' " says Steve Brotman of Silicon Alley Venture Partners, recalling the bygone IPO boom. "But the idea that you can go public without producing something that people will pay for is no longer fashionable. Now when you say, 'My company is worth $90 million,' it just means you swindled a lot of people."

I've matured. You haven't. Venture capitalists have had to sober up about start-ups since the April market shakeout, but what happens when entrepreneurs want to keep partying? "In order for Pseudo to have survived, they needed to have built deals with broadband portals about a year ago," says analyst Alan Brody of iBreakfast.com. "But they wanted to do their own thing. And it doesn't work that way now."

You think I don't feel guilty about this? "It's a tough conversation, no doubt about it," says Graham Anderson of EuclidSR Partners. "We say, 'Hey, this is a different time now. Work a little leaner.' " Adds Erik Jansen of Pequot Capital Management, "You don't walk away without guilt, of course. You're a human being."

I have needs, too. "He knows he's been missing his numbers," says one seasoned investor who just pulled the plug on a once-touted Web venture. "He knows what the needs are. You go through the litany of reasons why this hasn't worked out. They see their dreams in front of them, and they haven't made it."

It was just one of those things. "But don't take this too emotionally," the same investor cautions. "This is a business. And he might be seeing it coming. It's not as if a husband suddenly tells a wife, 'Honey, we're getting divorced.' " In a thousand little ways, maybe, she knew it all along.


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