A Lesson for Us and for Karel

July 7th, 2018

Reflex CapitalBlogA Lesson for Us and for Karel

Once upon a time :), we had an investment. Excellent sector. A bright founder. Let’s call him Karel

Karel said: “We’re just 6 months from a big investment and we need to bridge the period.” After reaching a deal with Karel, we invested on a convertible loan. The loan had a period of two years, just for case more time would be needed.

6 months went by and there was no big investment. Unfortunately, even the business began to flounder, mostly because Karel couldn’t focus and was constantly “pivoting” (he was into buzzwords of sorts). After a year, without a warning, Karel came and said “the investor is just around the corner” and asked for another loan. He claimed it was a crisis and he needed that overnight to pay salaries! OK, we helped. In order to not complicate his discussions with the investor with another cap table change, we gave the money to him personally and he was to put it into the firm through a personal loan. At least, that was the deal. We didn’t check because we trusted each other. Then his investor talks fell apart, again. Shit happens. After a couple of months, we happened to look at the balance sheet in the reporting. “Hey Karel, where’s the personal loan?” “Well, I decided that’d better for morale when cashflow was tight and so I haven’t put it in yet, but I’d put it in tomorrow, OK?” Hmmmm. Well, OK. Everyone can make a mistake, but we’ll keep our eye on you next time.

The personal loan repayment date arrived. Not a word. “So Karel, should we extend the loan?” we proactively approached him and did it for him. That happened three times. Karel never once contacted us first. Three months before the scheduled repayment of the “big” convertible note, we said: “The convertible loan comes due soon, Karel. You’re probably not going to find a big investor. What do we do?” “Well, we can either extend it or convert it, right?” OK, we can convert it, but for how much? Two weeks prior Karel took on board a small investor using a valuation of $2.5 million, but that’s not the rate he gave us: “I’ll allow you to convert only at a valuation of $6 million, because at 2.5 you’d dilute me too much.” We couldn’t believe our ears. For two years we supported him and we’re going to be three-times worse off than a new investor? “Sorry Karel, but that doesn’t seem fair to us and we don’t want to extend the convertible loan anymore. Do you have another idea?” He didn’t and he stopped communicating.

Three months went by, as did the due dates for both loans. No contact. We’re the ones with the problem, right? So we asked for repayment. He paid and we appreciate that. It’s clear that it wasn’t an easy situation for him. Karel is not a bad person. He bet everything on the company. He’s trying and we wish him success. But we do not want to participate on the project anymore, because we lost trust.

I wouldn’t have written this down, if I didn’t hear Karel calling us “founder unfriendly” recently. I think he should bite his tongue. Karel is the single investment in the entire history of Reflex where we had our convertible loan repaid. And we have a plenty of those, even after due. If there’s a will, there is always a way.

More articles on

Recommended articles

Show-off

April 29th, 2024 •

I’m not gonna pretend anything, I was trapped too. It felt good to have our company and myself in the media! It boosted my ego, which grew. There are some people who don’t have that, but I see it in most founders around the age of 30 and let’s be honest – everyone is a bit of a narcissist.

Startups, assembly plants and corporations

April 20th, 2024 •

It is said that creativity, innovation and entrepreneurship are the engines of economic development and the future prosperity of any country depends on them. In all neighboring countries, this seems to be the case, but not here.

The investor is not a patron

April 10th, 2024 •

Every investment transaction is essentially a bet on the person of the founder and their vision. There is usually nothing else in a startup.

Women in start-ups

December 22nd, 2023 •

At the end of October 2023, a strike for women’s equality took place in Iceland. Iceland is considered a world leader in gender equality. In this year’s World Economic Forum rankings, the island is ranked highest for the 14th consecutive year, yet Icelandic women are striking because they earn significantly less than men.

Go to blog

DO YOU WANT TO JOIN US?

HERE IS OUR CONTACT