Decoding Press Releases: An Industry Insider’s View (Part 2)
Has that startup actually raised a gazillion dollars to expand to a billion customers in 5 years?
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We decoded more press releases here.
No denying they could literally mean what they are saying. But there is always the possibility that companies do make positive or over ambitious statements even when they don’t mean it.
What’s going on here? We spoke to a respected industry insider to find out.
When startups say they have raised huge amounts of funds like “20 million dollars” and “100 million dollars”
Have they actually raised so much? Turns out it’s actually a bit more complicated.
Industry Insider: “Once again, more often than not, no. Such announcements made by the company are soft commitments made by an investor under the term sheet agreement.
It isn’t as straight forward as the company account now flush with ready capital for 20 million dollars. Depending on how the agreement is drafted the startup usually receives this money from the investors in tranches for previously agreed upon purposes to be used in a certain period of time.”
What does it mean when a press release says, “X company is shutting down operations”
Industry Insider: “It could mean they are letting go of staff and/or stopping all consumer transactions.
It could also mean that they are shutting down one vertical to pivot to another vertical. This will depend completely on how much money there is in the bank. For instance a certain foodtech company that shut down their food delivery operations pivoted into a wholly logistics oriented business. If you have run out of money, and there are no more potential investors ready to fund the pivoting or the continued efforts on the existing business model, then that too means operations will be shut down and the staff must go home.
In some instances to avoid shutting down operations, companies will seek for another more stable company to acquire them. And if that doesn’t work then they look at the option of an acqui-hire, which will at least give the top management a new lease on continuing to be employed. Contrary to popular belief even founders don’t have free access to the money investors have vested in company interests. A founder is only entitled to his salary and benefits (like ESOP) which are board approved. In fact depending on the terms of the agreement, startup founders can’t abscond or leave happy go lucky with any remaining investor funds either.”
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