Buisness Insider

What It Was Like Trying To Raise Money The Day Lehman Brothers Collapsed

Roman Stanek

One of the essential ingredients for a startup is timing.

GoodData CEO Roman Stanek knows that particularly well, having started his first major company just as the Internet bubble started, and sold it in 1999. 

But when it came to his most recent company, the timing was slightly less auspicious, at least at first. Stanek arrived in New York to ask for funding on the very day that Lehman Brothers collapsed. "So for GoodData, I landed in New York on September 15, 2008 and I came here to raise money, I came from Boston, I opened a newspaper and it said 'Lehman Brothers failed' and I was like, 'OK, here it comes.'"

That began a period for the company where it was all but impossible to get funding. "I went to VCs and they said, 'we are not funding anybody,'" Stanek says, "and here's the reason why. Imagine that as a VC, let's say you have $100 million, you have ten companies and each one of them needs $20 million. But you can assume that you will syndicate, so $100 million plus $100 million from somebody else will get you into a good place."

Then came the financial crisis. Stanek says, "What happened in 2008 is that the whole notion of syndication went away, everybody was trying to protect their own portfolio. So now you have $100 million and 10 companies, those companies need $200 million so what do you do? You have to eliminate half of your portfolio. ...That's the moment I showed up."

It was not a hugely receptive audience; they had bigger problems at the time. "These people, they don't know where their money is," Stanek says. "It could be parked with Lehman Brothers, so they don't even know where it is."

The result was a seven-month "VC no," a phenomenon where funds, rather than telling you "no" outright and burning a bridge, just never get back to you.

Stanek and GoodData got a different stall tactic. "The other way VCs delay their decision is, and that's what happened to us, is they ask you to do technical due diligence," Stanek says. "They take you through six months of testing and they essentially do it just to delay the decision, they know they've made the decision from day one."

But admitting failure wasn't an option, Stanek argues. "For me, to go back to my team and my existing investors and say, we're accepting defeat, we're not raising money because it's impossible, that means that you have a problem and you may lose employees and so on. ... I kept going, I kept trying."

Eventually, Stanek succeeded, getting investors like Mark Andreesen and Ben Horowitz on board.

He argues that the process actually made his company stronger in the long run, that the timing was actually right on. "It was very painful, but what it also did, it allowed us to start at a time when nobody else was starting," Stanek says. "I would hate to start today when, every day, Y-Combinator and 500 kinds of seed companies are spitting out startups, you have no differentiation. It's much harder today." 

NOW READ: This Photo Illustrates How Hard It Is For A Startup To Succeed

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