When a portfolio company is in trouble

Interviewer: Thanks for doing this. I want to walk through what actually happens when one of your companies starts to go sideways. Not the polished version — the real thing. Can you start at the very beginning? Like, how do you even find out a company's in trouble?

Partner: [laughs] Yeah, the real version. Okay. So the thing people get wrong is they think there's some dramatic moment — the founder calls you crying, "we're out of money." That almost never happens. It's way quieter than that. It's a vibe first.

Interviewer: A vibe?

Partner: A vibe. The board deck that used to show up four days before the meeting now shows up the morning of. Or it doesn't show up at all and someone "circulates it live." The founder who used to text me memes goes radio silent for three weeks. A milestone they were so confident about in Q2 just… quietly isn't mentioned in Q3. None of those things on their own mean anything. But you've seen the pattern enough times that your stomach does a little thing.

Interviewer: So what do you do with the stomach thing? Do you act on it right away?

Partner: No, and this is important — the first move is triage. Is this noise or is this real? Because founders go quiet for good reasons too. Maybe they're heads-down shipping. Maybe they just had a kid. If I escalated every quiet week into a crisis I'd be exhausting to work with and I'd be wrong most of the time. So I do a quick gut-check. Usually one or two signals, I let it ride, I just watch a little closer. But when it's three or four stacking up — the deck and the silence and a number that's clearly being hidden — okay. Now it's real. Now I actually open the file.

Interviewer: What does "open the file" mean, concretely?

Partner: I go pull everything. The latest real board deck, the cap table, the last financing terms — because I need to remember what we own and what the prefs look like, that matters a lot later. And the single most important number: how much cash is in the bank and what's the burn. Because everything from this point is a function of one thing — how long is the clock. Are we talking eighteen months of runway, in which case I have time to be thoughtful, or are we talking eleven weeks, in which case, you know, the building's on fire and I need to move.

Interviewer: Let's say it's bad. Short runway.

Partner: Short runway. Okay so now I need to actually diagnose why. And you have to be honest here, because the founder's story and the real story aren't always the same. Is it a market problem — they built a great thing and the market just isn't there? Is it a product problem? Is it execution — the strategy's fine but they can't ship? Is it a team problem, like a co-founder blew up? Or is it just macro, the whole sector got repriced and nobody's funding it right now. Those are completely different problems with completely different fixes, and if you misdiagnose it you'll throw good money after bad.

Interviewer: How do you get to the truth on that?

Partner: You call the founder. But — and this is a craft thing — not on the board call. One-on-one, off to the side. "Hey, walk me through what's actually going on. No deck. Just talk to me." And honestly half of what I'm evaluating in that call isn't the business, it's them. Where's their head at? Because there are basically three founders you meet in that conversation. There's the one in total denial — "no no, it's fine, we just need two more months and the pipeline converts" — and the pipeline is never going to convert. There's the realistic one who goes, "yeah, I know, here's what I think we got wrong, here's what I'd do." That one's gold, you can work with that. And then there's the worst one, the one who's already emotionally checked out. They haven't said it but they're gone. They're already thinking about their next thing. And you can feel it.

Interviewer: Does the founder's headspace change what you do next?

Partner: Hugely. A realistic, fighting founder makes me want to lean in. A checked-out founder — now I'm thinking about how this ends, not how it's saved. But I don't decide alone, and I don't decide yet. Next I go sideways — I call the other board members, the co-investors. Partly to align on how bad it really is, partly because they have information I don't. Maybe another investor already had the scary conversation. Maybe somebody's heard the founder's shopping for a soft landing. You triangulate.

Interviewer: And then there's a decision.

Partner: Then there's the decision. We take it inside, to the partnership. And the gate is brutally simple, even though the conversation around it isn't: is this savable, and do we want to be the ones to save it? Two separate questions, by the way. Plenty of companies are technically savable that we don't want to save — because the return's capped, or the founder's lost us, or honestly we just don't have the conviction anymore. And if the answer is no — no conviction, not worth it — we go down what I unaffectionately call the kill path. We'll come back to that. But say the answer is yes. We want to fight for it.

Interviewer: Okay, walk me through fighting for it.

Partner: So the first thing — and people skip this and it kills them — you have to define what "fixed" even looks like. Concretely. Not "get back on track." What is the milestone that, if they hit it, makes this a fundable company again or gets them to profitability? Is it a revenue number? A re-org? Cutting burn by sixty percent? You write down the new plan. And then immediately you pressure-test it with the founder — "okay, you're saying you can get to a million in ARR in nine months on this burn, show me the math, where do the customers come from." Because a lot of these plans fall apart the second you poke them, and better I poke it now than after I've wired money.

Interviewer: Assuming the plan survives the poking —

Partner: Assuming it survives, now it's a money question. How much do they actually need? And the discipline here is you don't fund "comfortable." You fund to a milestone. Enough to get them to a real value-inflection point where either they can raise a proper round or they're self-sustaining. Not a dollar more, because every extra dollar is dilution and risk. Then: what's the instrument? Is this a quick bridge note to buy time? A SAFE? An insider round where the existing investors price it? An actual priced round? Different tools, different signals, different speed.

Interviewer: And the terms — I imagine that's where it gets uncomfortable.

Partner: Oh, that's the ugly part. Because a struggling company is almost never raising at a higher price. So now you're talking about a down round, which is painful for the founder and the employees — it resets everyone's stock, the option pool's underwater, morale takes a hit. Sometimes it's a full recap, where you basically restructure the whole cap table. Sometimes it's a pay-to-play — which is a real hardball move — where investors who don't put in their share get crammed down, their preferred converts to common, they get punished for not playing. You use that to force the fence-sitters to commit. None of this is fun. You're sitting across from a founder you like, telling them the company they've bled for is worth a third of what it was eighteen months ago.

Interviewer: You mentioned fence-sitters. The other investors matter here?

Partner: Enormously. Because I usually can't or don't want to do this alone. So there's a real moment of — who else follows? I get on the phone with the syndicate. "Are you in for your pro-rata on this bridge or not?" And that's a tell, by the way. How the other smart money behaves tells you something about the company and protects you. If everyone's in, great, we do a shared bridge, risk is spread. If everyone's out and it's just me — that's a flashing red light. Now I have to decide, am I confident enough to go in alone? Because if I am, fine, but if the other people who know this company best are all passing, I should at least ask myself why I'm the sucker at the table. Sometimes that moment sends me right back toward killing it.

Interviewer: Say the syndicate holds. People are in.

Partner: Then we actually negotiate it — valuation, liquidation preferences, board composition. And here's a piece people don't expect: I usually condition the money. The capital comes with strings. "We'll do this, but we need a real CFO in the seat." Or, in the hard cases, "we'll do this, but there's a leadership change" — sometimes the founder moves to a different role, sometimes, rarely, they step out of the CEO seat entirely. And I'll tranche it — you get the first chunk now, the next chunk unlocks when you hit milestone one. So the money's tied to performance, not just handed over.

Interviewer: Does this need a formal sign-off internally, or can you just do it?

Partner: No, it goes back through our investment committee. New capital, plus we're committing more of our reserves — the money we hold back specifically for follow-ons — so the partnership has to bless it. And the IC can absolutely say no. They can look at it and go, "we love you, but we are not putting another dime into this," and then even though I wanted to save it, I'm back on the kill path. That happens. It's humbling.

Interviewer: But let's say it's approved.

Partner: Approved, we paper it, we close the financing — lawyers, docs, the wire goes out. And then immediately the job changes from deal-doer to governance. I reset the board cadence — we're meeting monthly now, not quarterly, sometimes biweekly. I put real monitoring in place. Sometimes I take a board seat I didn't have before, or we add an independent. Because the whole point of the conditions and the tranches is that someone's actually watching.

Interviewer: And then you wait?

Partner: And then there's the watch. This is the part that loops. Every few weeks I'm checking — are they hitting the milestones we defined or not? And it goes one of two ways. If they're hitting them — beautiful, that's a recovery, the company comes back to life, it re-enters the normal portfolio, maybe it raises a real up-round in a year and everyone forgets it was ever on death's door. Those are some of my favorite outcomes, honestly, the ones we pulled back from the edge.

Interviewer: And if they're not hitting them?

Partner: Then I'm right back at that conviction gate, except now I've already spent more money and more credibility. And usually the second time through, the answer is different. You give a company one real shot. Maybe, maybe two. But there's a point where continuing to fund it isn't loyalty, it's just refusing to admit you were wrong, and that's the most expensive emotion in this business. So eventually, on a lot of these, you cross over to the kill path.

Interviewer: Take me down the kill path, then.

Partner: Okay. So the kill path starts with the hardest sentence to say, which is: we're done funding this. We're going to write it down, maybe all the way to zero. And then it's not just "give up" — there's actually a decision about how it ends, because the ending has different flavors and they're worth real money sometimes. The best case is an acqui-hire — somebody buys the team, the founder and engineers get a soft landing, maybe you get a little capital back. Or it's an asset sale — the IP and the customers get sold off even though the company dies. Or it's a fire-sale M&A, some strategic picks it up cheap. Or you just wind it down — shut the doors, return whatever cash is left. Or, the bleakest one, you just… let it ride to zero, let it run out and quietly die.

Interviewer: And your job in that?

Partner: My job becomes managing humans and details, honestly. The founder — who's devastated, and how you treat a founder on the way down is everything for your reputation, the whole ecosystem watches that. The employees. Whatever cash and IP is left, making sure it's handled cleanly, no legal mess. And the LPs — our investors — they need to be told. Then the unglamorous final step: we mark it to zero in our books, it flows into the LP reporting, and — if we're being good at our jobs — we do a real post-mortem. What did we miss? Was the signal there at the seed and we ignored it? Did we back the wrong founder, or the right founder in the wrong market? Because the only thing a zero is good for is making sure the next one isn't a zero for the same reason.

Interviewer: Last thing — if you had to name the part of this whole process that firms get wrong most often, what is it?

Partner: The gate. The "is this savable and do we want to save it" decision. Everybody waits too long to ask it honestly, because asking it means admitting the bet might be bad, and so instead they bridge, and bridge, and bridge — little checks to avoid the big conversation. And every one of those reflexive bridges is money that should've gone to a winner. The discipline isn't in saving companies or killing them. It's in making the decision cleanly and early, instead of letting the runway clock make it for you. That's the whole game.

Interviewer: That's great. Thank you.

Partner: Yeah, of course. Depressing topic. [laughs] Ask me about the winners next time.