4 years ago I started thinking about designing an online dating project that I would be able to sell rather quickly to a US player. These were the only interesting exits, I knew the in and outs of the business, and 2 major players told me “prove us you have something and we’ll acquire it”. I felt it was high time to get down to it after turning 30.
Only 2 years after that, things hadn’t gone according to the plan, somewhat unexpectedly and very suddenly, and left quite a lot of people wondering. Or angry, when they, like I did, loose money and/or time - without a clear understanding of what happened.
It’s a very good thing to deeply resent something that went wrong if it serves as a constant reminder and you’ve truly learned the lessons, which takes time and reflective work.
Let me cut to the chase and spare you the details.
There were structural reasons, but in the 1st year of operations, they were bound to happen, and could have been fixed.
I certainly won’t blame anyone, and I’ll limit the self-bashing to: Instead of leading the company, I was simply its single point of decision - including to all the experienced people surrounding me - and therefore, of failure.
I’ll address the lessons on how to be an efficient leader, and entrepreneur, separately. These are the most important because they allow you to have the right team, investors, advisors and face contextual, hard-to-predict issues in the best position.
In the case of Smartdate, several contextual factors played a defining role and our structure was not solid enough yet to withstand them all. Everyone of them could have been mitigated.
1. The American Scammers
The future American buyers of Smartdate were impressed by our numbers but wanted to see how well the product would do in the US. So I decided to go full steam ahead on that market while we were not ready- remember, I imposed on myself time pressure as I had put in my mind I shouldn’t be too much older than 30 to have my first successful “big exit”. In general this resulted in as much drive as precipitation.
We bought tons of users from (seedy) affiliate networks, most of whom were sophisticated bots designed to lure men to videochat sites (very lucrative, not allowed to advertise). I trusted our tech to weed them off and our payment provider for fraud control.
I was wrong. Adyen had no interest despite their claims in making sure the transactions were legit, while in fact these bots used stolen credit card numbers to spam all our male member base (in all languages).
Not only did we spend on acquiring these bots (and some actual hookers), but we had to refund all sales, and get hefty penalties from the Credit Card companies (you can’t do without them, so they are merciless), and even from.. Adyen. One of the major investors had leverage on them (they wanted him as a client) and he didn’t do anything- giving a taste of things to come.
In 3 months, we lost 3.5M€ of cash flow. About 7 months after launch.
2. Optimistic cash flow predictions vs reality-check
This actual loss was somehow amortized, and all the state subsidies we were granted 6 months before were accounted for, but just not coming onto our account! I’m extremely persistent, would break into their offices until they would push the “wire” button, now we needed the money. But I never managed to get them to do it. Someone was always “on holiday”. Some file was missing..
OSEO and Coface failed us, while we’d spent considerable resources to comply to all their requirements. Had we been an industry in some remote area, we would have gotten the subsidies.
Safe to say that sealed my belief in the economical non-sense of these organisms. The state burdens you with taxes and an inflexible workforce, and is supposed to give some of that back to you- but only if you look like you’re struggling, the coal mine way.
Anyhow by late June 2011, since I was looking daily at our bank account instead of doing 38-tab-excels to predict our cashflow for the next 5 years like our investors demanded, I didn’t need to be the best accountant in the world to see we needed to let go of most people and either do something else, or sell the company.
Said investors just wouldn’t believe it and just wanted more excels, accountants, auditors. Then they went on a month-long vacation.
3. The investors disappear overnight and kill the sale
Late August, back from vacation, they finally had to face reality. But instead of seeking for solutions, they panicked. They’d “invested on me”, basically left me alone (apparently quite confident they’d made a great deal), thought we had 2 finance whiz-kids- so this could only be a big mistake.
The last I heard of them is “we want a comprehensive audit asap”.
Since I’d told the team to find another job, the investors would no longer cooperate, a pivot was no longer an option. We still had a product and a large base of members, so I took off to the US to try and sell the company.
I went on with the audit since we needed it anyway to sell.
Not only did no one even remotely help me sell the company, they actually all resigned from the board early October and not one of the 6 angels or so ever got in touch.
It will always baffle me that all these people who had in most cases put personal money never attempted anything and thoroughly ignored the only person who could bring their cash back.
Personal feelings had certainly overwhelmed business sense. I was the company, and if the company failed them, it was as though I personally failed them.
Yet: What responsible investor throws the towel entirely at the first “crisis” meeting, and only of them ever bothered (with 15 years of experience) to send a whole 2 emails in total after that? as usual with VC contracts, they could have forced me out and replaced me anytime. If, as they made it clear, they did not want to help me.
Trust me, even if I just put 30k in a company, I would do everything I could to save it. I actually felt terrible and did all I could to try to get their investment back, at least. I emailed about progress constantly and got zero response. If anything, I promised myself I’d get my friend’s money back.
If you ever face that kind of wall (the French ego culture played a part here), as a business person it’s your job to find a way to break through it. In this case, I also felt offended and stayed in the US, while I should have stalked them to meet face-to-face.
By mid-october, I’d convinced the 2 major US players to submit their offers. 1or 2 days into the due diligence, they’d come back to me, saying “your shareholders won’t answer”.
4. The Belgian “coup de grace”: a clever (or lucky?) crook, Frederic De Schryver.
We still had funds so all that was left to do around Oct 25 was to pay remaining invoices and hand over operations to someone interested. It’s important to understand that Smartdate could have kept its operations on a smaller scale, and I planned to come back to them when I had/could find enough cash to do it. I never ever intended to give up on what had been my life for 2 years, and certainly not that easily: shareholders didn’t want to be involved, well, the company could keep going on.
On Oct 26, I log in to our bank account : “Account suspended”. Okay.
I hire on my personal funds 2 lawyers to force the bank to talk (which is very hard since banks know you can’t ever sue them) and eventually find out that a Mr Frederick De Schryver had seized the remaining 800,000€. That’s him:
I didn’t name anyone, but he deserves a place at the pinnacle of the best crooks. While I was away, learning we were selling, he purchased the brand Smartdate in Belgium. From there, while Smartdate held the brand worldwide and his suit was beyond meritless, he probably bribed a judge to get a summary judgement applicable in France. I mean, getting 817.726€ of damages for a brand you never exploited in one month and in Belgium: a “coup de maitre”.
Now: how did the timing turn out to be so perfect? I have no elements showing it was anything else than a coincidence. That guy is really lucky, despite a lackluster career.
Why did my bank, whose boss was close friends with investors, revoke my access actually TWO days before the amount was seized? Only I was their client, I was the only one to have legal access to that account, and lawyers clearly concurred that it was purely illegal to do that. I actually found out recently that the account had a few thousand on it of accrued interest, so it was never closed, despite my letter ordering them to do so.
Strangely, no one on the investor side expressed any issue with that or the Belgian story. Maybe it was just in their line of refusing to communicate.
End of story.
Hackers took control of the domain Smartdate.com last year, and are trying to sell it.
I got cleared of any personal liability recently. Not that I was worried: Every piece of accounting and all documentation I provided were clean of course, and conclusion was we’d suffered a major cash loss too quickly.
I think the “resigning from the board” part was, officially, intended to exonerate themselves from any liability “because they didn’t have their audit ready within 2 weeks”. But I probably missed something else there.
Indeed, it was preposterous for them to think there could be an “accounting” issue: not only did we have a reputable Accounting firm, a very strong CFO, and they had pushed me to hire a COO whose role ended up just feeding them with cash flow predictions. These were wrong.
Hold on, they also had forced us to transform at great expense into an SA, which meant we were regularly paying another 15k for yet another expert to “quadruple validate” our accounting.
It’s very uncommon for investors to jump off ship a few weeks entirely after things look complicated. Just like refusing to replace me as they had all powers to do, and while I asked, since whatever their plans were, had no chance to work in my mind. And who in their right mind asks you to devote all your resources into yet another audit when the priority is to turn the business around?
Were these just “bad” investors? beyond Smartdate’s case, which points all too clearly on that (and the obvious reason for them to put the focus and all blame on myself- while I’d say that whining to be the 1st VCs with super harsh term sheets to ever have been “played” by the founder makes them look even more incompetent) -
I’d objectively label them as a bad mix of “hands-off because lazy (not visionary)” and “zero understanding of web products and tech”, plus “zero networking potential”. The newbies has since stayed out of web VC, clearly for the better. They were smart for sure, but very impulsive, messy and never doing any homework: boards were just random, useless questions about details, while they’d be tweeting and stuck on their emails.
Anyway: No matter my opinion, I was in charge, so the last thing to take out of this is “a good opportunity was wasted because of someone’. I’d taken their money, that was my decision, so it was my job to make do with them and work things out, get my message across in a way that would be understood. Even better, not associate with them in the first place.
I’ll come back on the “communication” and “anticipation” factors, which didn’t use to be my strengths.
I took the best part of 2012 understanding and analyzing the lessons and scouting different projects, learning some more from the best in the US. And using disappointment as a fuel to fight obstacles.
I’d built Smartdate alone out of nothing, and at some point you cannot go on without genuine support of people who care about the company. Assembling the right team is worth the effort and the time it may take.
This time, I intend to be fully prepared for anything.