Dec. 4, 2023
I Was Supposed to Be a Millionaire at 25… Instead, I Went Bankrupt.
This is the story of the emotional rollercoaster that was my last startup, Gymtrack. Hope you find it helpful as you navigate your own startup journey.
You can read the article here as well: https://entrepreneurshandbook.co/i-was-supposed-to-be-a-millionaire-at-25-instead-i-went-bankrupt-ef525370e353
01:45 - Startupfest
03:29 - Dave McClure's Accelerator
04:53 - One of Two Things
08:32 - The Game Begins
11:13 - Real But Imaginary Confidence
12:51 - Things Start to Break Down
15:43 - We Were The 1%
17:04 - Multimillionaire to Bankrupt in One Phone Call
17:48 - Push
21:00 - If I Could Do It Over Again
WEBVTT
00:00:00.025 --> 00:23:24.525
So I wrote this article on the story of GymTrack, my last startup and a lot of founders wrote back to me saying that this story really resonated with them so I decided to record it and publish it on the podcast. Here it is. I hope you like it.So you know what they say, right? Startups are supposed to be about changing the world. They're supposed to be about making an impact. Steve Jobs was like, I wanna make a dent in the universe. That's what he said. But I'm 22 and I have one goal to make serious money. That's it. I don't care what I'm gonna build. I don't care what the startup's gonna do as long as I'm hyper successful. And that's my mindset. In 2014, when my co-founder Lee Silverstone and I s tarted a company called Gym T rack, which had the goal of letting members automatically track t he w orkouts, it was Peloton for the gym. And we had a , a tagline back then, it's the future of fitness. It's cheesy. I mean, it's seriously cheesy, but it w orks. In fact, we get off the ground running pretty quickly. And we were, like I said, 22 at the time we had just graduated, we had started a different business called My T utor Tutoring Company, and that was kind of running off on the side. So we have this idea for Gym Track . One of the big things that happens really early on is that we, my co-founder goes to a conference called Startup Fest in Montreal. It's funny because when I think back at that time, we had so much that we were already doing, we already had a few people helping us work on this. And the accelerator where we were working, the incubator had kind of this, this shuttle bus that was driving people from Ottawa where we were to Montreal two hours away. And they were kind of really pushing us, Hey, you should really go to this event. You should really go to this event. And my co-founder, he is getting really antsy. He's more of an extrovert type. And so he was like, maybe I should go. And I'm like, dude, like we have so much stuff going. What are you gonna , what's gonna happen to this conference? Why would you waste time? Anyways, he ultimately decides that he's gonna go. So he goes to this conference, I get a call about a day later and he says, listen man, I just met this guy , uh, Dave McClure. I'm like, who's Dave McClure? And he's like, dude, this guy's a big deal. Anyways, I look him up and he was, he's the founder at that time, the CEO of 500 startups, which is kind of like sec , uh, there's Y Combinator and then there's 500 startups, at least there was back then in 2014. And he's like, look, I , I met Dave McClure at this conference. I was introduced to him. He wants to go for drinks tomorrow, so I'm gonna do that. I'm like, go ahead. And so, so he does that the next day, and then I get another call and he says, listen, Dave McClure wants us to join his accelerator in sf. I'm like, okay, cool. When does it start? He's like, this is Saturday. And he's like, it starts on Monday. So we get in, we literally get handpicked by Dave McClure. Way, way after the, all the applications had gone through, all the interviews had gone through Dave McClure meets, Lee likes his startup , likes the future of Fitness and decides you guys are in, and I think we were batch 10 at the time. So we get to 500 startups, and at the time we had already raised half a million dollars from Angels, which today doesn't sound like a big amount, but I swear it was back then. And importantly, it was more than any other startup had raised. So we come in there handpicked from Dave McClure raised more than every other startup that's in this accelerator that's brought startups from across the globe. As far as I'm concerned, we are right on track. I swear to God, I feel like I'm gonna be the next Steve Jobs, the next Mark Zuckerberg. And so we go through the accelerator and, you know, near Demo day, right after demo day, we start fundraising as many startups do. We go pretty far along with , uh, a , a VC firm and sign a term sheet. And ultimately they start making it through due diligence. And as that happens, we get a call from a company that I'm not gonna name because I'm , because it's still, believe it or not, under NDA , but let's call them Equip Fit . And they are one of the largest, they're a European gym equipment manufacturer, one of the largest. And they, they tell us, look, look, we love what you're doing. We love your vision, we wanna lead your seed round. But as I said, at that point, we'd already signed a term sheet with a bc we would really follow along and we didn't wanna , you know, risk that falling apart by starting a separate process. So we ultimately tell 'em, look , sorry, we , we can't do it. And they kind of go away. We close our, our seed round. So a year after, literally 12 months after incorporating this company, we close a $2.5 million seed round, which again, today it's peanuts back then was a lot bigger, especially for 2 20, 2 23 year olds out of Ottawa. So we, we tell Equip we can't take their money, but they literally won't take no for an answer. The CEO of Equip Fit sends his head of m and a from Europe across the the globe to Ottawa. He takes us out for dinner and he tries to convince us to take their money. And he literally says, I can do two things. The CEO's already signed off for me to do one of two things. If you want, we'll sign off on the exact same term sheet that the VC signed onto and we'll just replace them . Or what I'll do is what we've already, well , what's already been okayed is $250,000 worth of secondary from each of you. So we'll buy $250,000 worth of your personal shares. And as soon as we sign , you know, we close this, this investment, you will each have a quarter million dollars in your bank account. And you gotta understand, like a , a minute ago, I'm a broke student, like , literally I'm a broke student and now I'm offered $250,000 cash effectively, no questions asked. And I swear in the second that he says it , Lee and I look at each other and right away we're like, no, we . We're 23 year olds, we don't know how to spell hardware. We get offered, what if you think about is maybe nothing in the world of startups, but it's more than what, 99% of 50 year olds make $250,000 for shares of an idea. And without thought, we say no. And the reason's simple, as far as I'm concerned, I'm the next Steve Jobs, I'm the next Mark Zuckerberg. They would never sell their their shares this early, so why would I? So anyways, that kind of goes away. We close the, the seed round two and a half million dollars a year after incorporating, we're truly on top of the world and Equip Fit calls us back and he says, look, I know we couldn't get, get aligned on, on the seed round. We still wanna do something here. Let us lead your series a a month after we close our seed round, they tell us they want to lead our series A, as far as I'm concerned, we are right on track. And this time they invite us to fly across the world to their offices in Europe. And so we do, we fly there, Lee and I, I remember the night before, I mean the night before, we, we thought so much about how are we gonna handle this meeting? How are we gonna handle this, these negotiations? What are we gonna ask for? And we had just raised, mind you, at $6.65 million post money , that was, that was our valuation. And we thought out and we said, look, we have all this money in the bank. When we raise a series A in 18 months, we should be worth at least 25 million. And so, you know what, if they want to lead our series A right now, great, but it's gonna be at 25 million. That was gonna be our ask. It was, it was super high and it was , uh, equally absurd. But that's the way we thought about it. And the night before, we went through every single scenario possible. I mean, literally every tangent you can imagine, okay, if, if they say this, what do we respond? We say that. And if they say this, how do we respond? And literally every single thing you can imagine for hours and hours and hours, I just remember we were so excited, but more than anything, we were so nervous because this meant everything to us. I didn't sleep one second that night. So the morning rolls around and 9:00 AM we show up at their headquarters, which is literally like a, it's like a mini Google village in this small town in Europe. They've effectively owned that town . And they have what really looks like a mini Google-like campus. And they've got, you know, the nice cafeteria and they've got the ping pong tables that nobody uses and all these sort of things. And so that was impactful. But what was more impactful is that we show up and we sit down at reception, and I swear that the minutes go by, the minutes go by, it's nine 15, it's nine 30, it's 10:00 AM And I'm thinking to myself, why are they making us wait so much? Is this like some kind of negotiation tactic, , what's going on? So finally at 10:00 AM uh , they show up, they show us around their, their whole offices, and around 1:00 PM we get into a room, we have the head of m and a that we dealt with. And so when he brings us to this room, the CEO and the CFO walk in , and that's when the game begins. I mean, and I'll tell you this like as an aside, I mean, normal series A negotiations. I've seen many of them . Now, they're not really that exciting. I mean, for , for the most part, a valuation gets said by some lead vc and almost always the founder accepts it. Maybe they negotiate a little bit, you know, if they have multiple term sheets, then there's a bit of a bidding war that's even too much to call it. I mean, you know, if you have multiple term sheets, you play people off each other a little bit and, and try to maximize what you can get. And , and that's about it. But it's really not all that exciting. That's normally what, what it's like, this was, this was completely abnormal . And so, and , and I can't make this up. I mean, to me, this whole situation, even when I think about it now, when I was, when it was happening in the moment, felt like a scene out of a movie and not even a realistic scene, like a completely unrealistic scene that if I saw it in a movie, I'd say, this is so fake. This is not how this stuff happens. But this was real, this is exactly how it happened. And so we get into that room and I say, look, we just raised, we , we don't need the money. Our goal is to raise a Series A in 12 to 18 months at 25 million premoney. So if you wanna invest now, great, but uh, it's gonna have to be a 25 million Premoney . That's how I start things off. And uh , well they tell us, you know, you guys are crazy. You just raised it 6.65 million posts. So they open up at , at around 8 million valuation. And then here's the challenge. The challenge is that there is nothing, nothing to ground these negotiations. If you negotiate a car, you can start talking about comparables. What are other cars that look like this? What do they sell for? If you're buying a house, you can look at the house down the street and compare it. If you're valuing a company that has real revenues, real ebitda, you can talk about multiples. But when you are valuing what is effectively still a seed stage company with no revenue and just an idea, what's it worth? How do you defend a valuation? You, you don't. And so this entire negotiation was based on nothing. There's nothing to negotiate, nothing to give and take. No meaningful arguments can be made to actually close the gap. It's literally just a battle of wills. And so what happens is we say number and we defend it, and then they discuss it and say number back. And sometimes they would ask to break for 30 minutes. We would go into like literally this is literally happening. We go to a separate room while they're in another room and I don't even know what math we're possibly doing or what we're even like taking the time to do because there's nothing to calculate. And then we go back and they have a whiteboard going, right? And they're scratching numbers and putting numbers back in. And at one point they're talking to us like, you know , okay, what if we set up this structure or that structure? It got crazy. But you know, after literally a few hours, we were at 14 million ask and they were 12 million bits. So we had tied in that quite a bit. And the founder of this company who is, you know, 30, 40 years my senior and is worth hundreds and hundreds of millions of dollars is staring across, you know, is standing up on the other side of the room. At this point, we're all standing and I'm on the other side of that, that table. Uh, and I'm a kid and I look at him in the eyes and I said to him, listen, I'll be honest. And I was not being honest, but I said, listen, I'll be honest, the lowest I can go is 13.3 million. It was a very, very specific number. That's two x the last valuation, and it's the absolute lowest the VCs will let us go. That was my kind of story. It was, look, hey, it's not my fault, it's the VC's fault. They don't want us to raise at anything lower than this. That was a complete lie. I don't know what they would've gone to, but that's what I said. And I really felt, I mean, I'm not gonna, like, I felt like I was the next Steve Jobs, and so I had very real but imaginary confidence . And so I started in the eyes and I put out my hand like we're on Shark Tank, I this, I can't stress enough how fake this all sounds when I say it. And yet I swear to God it is real. And it worked because he shook my hand and we agreed to a $13.3 million valuation to , for an $8 million series eight locked in from one of the largest Jim McQuinn manufacturers in the world, just 14 months after we incorporated. I will never forget the feeling right after that, when Lee and I went to a rental car and we are sitting there and we are just elated. I mean, 2 23 year olds we're just like , you know, like high fiving each other. Just can't believe what has just happened. And at this point, I mean, I'm like five espressos in. I'm running on no sleep. I'm barely awake. Everything feels surreal. I mean, honestly, are we living in a movie? This , this really just happened. Am I the next Steve Jobs? But it felt like, you know what, we're right on track. And so, you know, things quite down after that, we go back to Ottawa and we start to negotiate what was a handshake deal, literally to an actual investment. And that's when things start to break down. Because when we, when we start, you know, negotiating the term sheets, there's some control terms that, that the , that equip fit is asking for that our VCs will just not accept. Uh , and we really wanted the money. I mean, we wanted the partnership, but really more than anything, I'm being honest, we wanted the hype. That's what we were really after. I mean, the hype of raising that much money that quickly at that age was just too much to resist. So we did everything we could and we argued hard with our VCs to let us do this, but it wouldn't fly. And so ultimately we go back with counter and we tell 'em, look, if you want to control this company, because some of those terms weren't true full control, but that was kind of where it was going. And we said, look, if you wanna control this company, you'll have to buy it. And you have to understand at that point, our startup was more in our heads than , than in reality. I mean , we had a team, we built an alpha, but we had no customers yet the product was not ready for primetime and the company was not worth $14 million. And yet, about a week after, two weeks after we, we make that ask, they call us back, we get a call and they say, you know what? We're in, we want to do it. We'll buy you for $14 million. All cash. So that was massive. I mean, that was just couldn't believe that that, I mean, when we asked them to buy us, we figured that was the end of that partnership, negotiation, whatever you wanna call it. And so the fact that they actually accepted was mind blowing to us. But all right, you know, let's go. And so now we, we spend months negotiating the new term sheet for the acquisition because there's a bunch of things you gotta negotiate in there. And then they send several members of their team over to our offices for in-person di diligence, we move to final contracts. These are like dozens and dozens of pages, you know, red lines and all these things back and forth. So much time, so much effort, so much thought. We work out, even an employment agreement at this point. What it said was, I'm gonna make personally $1.7 million at signing. I'm gonna make $200,000 USD , which mattered 'cause we were in Canada, so let's call it like in , in our mindset , $250,000. And I'm like, you know , 23 , uh, a million dollar bonus in three years. And I would still own shares in my company. So I am literally, I mean, in another world, and, and I'm gonna admit, I mean at this point I'm buying Teslas and condos in my head, I'm just thinking like, you know, don't count your your chicken silly hatch , right? I'm , I'm counting , I'm all in. What am I gonna get? What condo ? Where should I buy? Like, all these sort of things are going through my head and I can't help it because I'm 24 years old and as far as I'm concerned, I've made it, but, but it did feel a little, you know, too good to be true. Just felt too easy. So what I do is I think, well, you know what, like our lawyer who I would continue to have a great relationship with to this day, a person that I, that I really trust. And so I went to him and I said, look, you've seen hundreds of these transactions, tell me honestly how many deals make it this far and fall through and fail. And he said, and I'll never forget it, he said to me, 99% of deals that make it this far close, I'm like, boom, that's exactly what I needed to hear. We are golden. Except we weren't golden. We were the 1%. And at that point, we are burning $250,000 a month because we have like 30 engineers trying to make this thing work. And we have a million dollars in the bank. So four months of runway. The problem is we didn't wanna lay people off because we thought we were gonna get acquired. And we certainly needed to, you know, we didn't wanna look weak during negotiations, nor did we wanna , you know, cut staff that we didn't need to cut if we were gonna get acquired . And of course this company was gonna put in a bunch of money into the actual operational business, so there was no need to do anything. But at this point, the jig was up quick fit calls, they tell me they're out, and we negotiate a break fee , which is an amount that the acquirer, the potential acquirer would have to pay us in case they pulled out, unless they pulled out for a set of reasons that were specifically outlined and negotiated. And I think they named one of those reasons. And you know, we could argue, oh, you know, that doesn't make sense because of this and that, but at the end of the day, we're a startup running outta cash four months of runway against a behemoth. So what are you gonna do? You gonna sue them? Just wasn't an option. So at the end of the day, they said many different things and done to the mat and then reality set in , and the thought of laying off literally two thirds of the team that we fought so hard to hire over the years was too much to stomach. I mean, did I really go from multimillionaire to bankrupt in one phone call? And that's what it was. The dream was debt . And first, you know, I was and then I was sad, and then I bawled like a little kid whose candy got taken away. And I remember that. And um , I'm sharing it because I guarantee you I'm not the only founder that's had those ups and downs because this is what they mean when they call startups roller coasters. It's the highest of highs. It's the lowest of lows. All it took was one phone call after that, for what it's worth. We kept going on for about two years. We tried a few different pivots, we hired a new CEO , but the air had been sucked outta the balloon . Jim Track died that day. Fast forward like many years to now, a few months ago, and I met the founder and CEO of push and push was, I knew this company from like day one that we started Gym Track because they were also in the wearable space. It was in the, you know, it was the same vintage. The founder was around my age, but I always dismissed them at niche because they were going after pro sports and university streams, not mainstream users. We were going after like gyms and just the average person. So they were millions and millions of potential users. They're going after pro sports , they're measuring like specialized metrics that only matter to serious athletes. So as far as I'm concerned, they can never be a unicorn. But he took me through his story and , and I realized like he'd actually done it the right way because he bootstrapped his weight to success by starting with a small market. And he actually did wanna build, and I didn't know this, but he did wanna build a , a kind of product for, for the masses. He just started by selling B2B to pro sports teams. And so the beauty of it was like capital requirements were way lower, and more importantly, the customer value was clear. He was delivering real customer value. And so when, you know, we were in the wearables space, wearables were super hype when we started. And that changed, and it changed for him as well. The difference was that when investor sentiment turned, it didn't kill a startup because he still had a real business that was delivering real value that he could drive forward. Instead of chasing hype, he built a real company instead of chasing unicorns, he delivered real value. And you might not think that he's changed the world, but from his customer's perspective, he did. He had real traction, real impact, and now a real exit. He's an actual millionaire, not just an imaginary one. I say all this and like kind of the, maybe the takeaways here, right? Like I , I share this story because frankly it's fun for me to share it , but also because I think there is something to learn here. You know, at the end of the day, founders we're always told to dream big, build huge companies, swing for the fences. Uh, but at the end of the day, who's, who's who selling that dream? Like who's actually pitching that? And frankly it's VCs like me. And look, I win. Like if I have 15, 20 portfolio companies and every single one swing for the fences and only a few make it, I still win. But if you're putting all your eggs in one basket, if you're the founder, you need to watch that basket because if your business goes outta business, that's you, you have one of one . And so look, I I think back to it like could, could the gym track story have gone a different way? Could it have closed? It might've, and you know, for sure had it close and had it become multimillionaire, I'd be a different person and I'd be sharing a totally different story. But the reality is that strategy can be based on hope, right? Strategy's gotta be based on reality, on probabilities. And when you actually look at the data, even though it seems like you look at Zuckerberg, you look at jobs, they were all so young when they made it happen, the data actually tells you it doesn't really work that way. The data says that super founders and these are founders of successful materially successful startups are six times more likely to create a unicorn than first time founders. The other way to think about this is that like everything else in the world, practice matters. And so yeah, sure, sometimes your first one is your biggest one, and if you have that, you should really go for it because that's special. And frankly it's great. But as a strategy at the outset to think I'm gonna start a company and it's going to be a unicorn, that is the wrong mindset. Instead, your goal with your first one should be to get a win. Hopefully it's a big win, but at least a win. And your odds of getting a win are much higher when you focus on value versus hype, when you focus on customers versus Tam . And when you focus on building and not pitching. So three overall kind of like observations, right? The first one is honestly, if I were to do it all over again, I would lower my ambitions. I know it sounds weird because everybody tells you to like aim high, but the point I'm making is I would just think about delivering real value, about getting real traction. I wouldn't worry about like I did back then, I remember spending so much time thinking about what's the massive billion dollar unicorn story, but that's all hype, that's all bss. It's really about delivering real value to customers. And sure, maybe caps out a million in revenue, maybe 10 million in revenue, but at least you got something. And yeah, if you get lucky, it'll be a hundred million billion dollar revenue and you'll have something really big. But as long as you have something that works, you will not only learn much more, you'll make more money and you'll have real impact. You're actually changing somebody's world. The second thing is when they say start for roller coasters, they mean it. And in fact, roller coasters might be like underselling it because it's truly hard, it's emotionally taxing and there's just no way, like I'd say be prepared, but there's really no way to be prepared. What you should know is that even what to you from the outside might look like a rocket ship. And it's easy to do that. Compare yourself to other founders, other startups that seem to be crushing it, raising money, everything's going well. I guarantee you , from the inside it doesn't feel that way because startups are hyper fragile. You're literally one employee, one customer, one investor away from complete success and sometimes from death. And that's just what you sign up for. But the more hype you build around it, the bigger the unicorn you chase, the more all that's amplified. So again, no way to be prepared, but all goes back to the same kind of principle value over hype, which leads to the third point, which is there is no substitute, none for solving real customer problems. There's no smoke and mirrors, no massive round , no pr, no hype's gonna save you if you're not solving a top of mind problem for your customers. You might have 10 customers, you might have a thousand, you might have 10,000 customers. But at the end of the day, if you were to go to your customers today and ask them, am I solving a number one or number two problem for you? Their answer needs to be yes. If you've listened to this episode and the show and you like it, I have a huge favorite to ask for you. Well, it's actually a really small favorite , but it has huge impact. But whichever app you're listening to this episode on, take It Out, go to Product market Fit show and leave a review, please. It's going to help. It's not just gonna help me to be clear, it's going to help other founders discover this show because the algorithms, whether it's Spotify, whether it's Apple, whether it's any other podcast player, one of the big things they look at is frequency of reviews. It's quantity of reviews. And the reality is, if all of you listening right now, left reviews, we would have thousands of reviews. So please take literally a minute, even if you're just writing like great podcast, or I love this podcast, whatever it is, just write a few words. Obviously the longer the better, the more detailed the better. But write anything, leave five stars and you'll be helping me. But most importantly, many other founders just like you, discover the show. Thank you.
00:00:00.025 --> 00:23:24.525