The document discusses an early stage investor who has invested in a startup for nearly a decade without significant revenue growth or progress. While the startup continues requesting more funding, promising progress, the investor has lost faith in management's ability to deliver. The investor questions when VCs should acknowledge a mistake rather than throwing good money after bad. It discusses how over-optimism and arrogance can lead VCs to invest far more than startups are ultimately worth or sold for.

1. “They Shoot Horses, Don’t They?” By Tom Tierney
8 April 2013
One of the hardest decisions for any early stage investor in a startup is when to stop “putting good
money after bad”, when to finally disengage from an investment.
One of my investments will soon be entering its second decade of life as a company, with limited
“revenue traction” to date. I stopped doing follow on investments a few years ago because I saw a
reoccurring pattern of over promising and under-delivery, in my viewpoint, very unrealistic
management.
Now, it may well be that I’ve grown too cynical and jaded over the years and my latest response to a
follow on round will be seen as a major mistake in the not too distant future, should the company
succeed. I won’t hold my breath.
This is my actual email response to another follow on convertible financing request from this company,
names and other identifying information redacted:
From: Tom Tierney <tierney@XXXXXXXXXX.com>
Date: April 8, 2013 2:32:27 PM PDT
To: XXXX XXXXXXX <XXXX.XXXXXXX@XXXXXX.com>
Subject: Re: Action requested: XXXXXX bridge financing
Hi XXXX,
| As you may already know, XXXXXX is in the process of closing a $X.XM Convertible Debt
| Bridge Financing.
Every year since I first invested in XXXXXX in 20XX or 20XX in the first round, and follow on investments in the B, C, C-plus
etc., we are told by the CEO-of-the-day (from XXXX, to the other XXXX, to XXXX and now XXXX XXXX) that you've:
1. Fixed the last major problem.
2. Have something new and great coming.
3. Customers lined up and production/break even in sight.
4. Need additional funding to production/break even.
...and each following year we get #5:
5. Had problems, but things look good, GOTO #1
In software, we call this an "infinite loop". If XXXXXX were a race horse, it would have been shot by now.
I realize the promise of XXXX in XXXXXX for XXX and beyond but at some point after having what, $XXM->$XXM sunk
into the company and no real ongoing traction, isn't it time to say in the words of Roberto Duran: "No mas!" (no more)
There is no company apparently breaking down your door to buy this technology as part of an M&A transaction, even if they
have nibbled, the value has been peanuts? Isn't that telling you something?
If I were a limited partner invested in one of your VCs, I'd probably be reminding them of their fiduciary responsibility after all
the money poured into this thing over time – why pour any more in?

2. As Kenny Rogers sings in the "Gambler":
"You gotta know when to hold them,
Know when to fold them,
Know when to walk away,
And know when to run."
I think the time "to run" was probably many convertible rounds if not full rounds ago.
Please put this company out of its misery, so venture capital that would have been wasted here is put to use in some other
promising technology or start-up.
Tom Tierney--
Tech Coast Angels - San Diego
It’s been a long time. VCs have put in a lot of money. Why do they continue to do this, one may ask?
A VC has “reserves” in a fund and may well use other funds to invest where they see opportunity.
But at what point does it take a VC to decide to finally throw in the towel and come to the realization
that maybe this once, they’ve made a mistake and must move on? Do they use what is left of a fund
reserve like a “Hail Mary” pass at the end of a football game, hoping to pull a win out of what is looking
to be a loss?
They shoot horses don’t they? This company, this “race horse”, seemingly “can’t find the race” yet the
VCs are still betting on it … to win!
The litany of VC failure to “pull the ejection handle” on a startup investment and stop pouring “good
money after bad” grows every year and includes companies (and total investment loss) like “Webvan”
($800M), and “Amp’D Mobile” ($350M), never mind the more recent “Solyndra” ($800M+).
How does this happen? Is it arrogance on behalf of the VC? Is it naivety in continually believing the
company management’s opinion of “success just around the corner”? Is it a combination of both?
I truly hope this company succeeds in the end for all the employees that invested blood, sweat and tears
over the years. Early stage investors know the odds of success going into an investment, only risk
money and can write off losses. Some employees stake their careers on their management’s opinion on
future direction for the company, a much bigger “investment” that you can’t write off.
What’s the lesson here? Whether you’re the horse, the jockey or the person who is placing the bet, at
least make sure your “blinders” aren’t on in the “early stage investing race”.
UPDATE: (Summer, 2015: Company sold for a small fraction of total angel/VC investment.)
Tom Tierney lives in Southern NH and is a member of Tech Coast Angels (www.techcoastangels.com).
Also see http://en.wikipedia.org/wiki/Tech_coast_angels for more background information on the TCA.