I Turned Down a $4 Million Term Sheet. Then the Coronavirus Hit.
A health care startup is now scrambling for funding after turning down a VC investment in February
Coronavirus Diaries From the C-Suite is a new Marker series where leaders share how the pandemic is affecting their businesses.
In early February, Jo Schneier received a term sheet for $4 million in Series A funding for his New York City–based health startup, Trusty, which develops Medicare tools for health insurance brokers. Schneier, the company’s co-founder and CEO, turned it down. Funding deals have since dried up, and Schneier is desperately trying to cut costs so that Trusty — which had raised $3 million to date and has 14 full-time employees — can stay in business. Now working out of his Queens bedroom on a desk he borrowed from his 10-year-old son, Schneier spoke with Marker about the company’s mad scramble for cash.
The $4 million term sheet would have been really bad for our early investors — the valuation would have crushed them. So we decided to do a seed extension for $750,000, focus on growing revenue for the next couple months, and then do the Series A. We had all these investors lined up, like ducks in a row, waiting for us to hit a milestone, which we were predicting we’d do by August 2020, so turning down the term sheet seemed like a rational choice. Then the world exploded.
We had all the money lined up for the seed extension — we even had potential investors say, “We’ll invest the whole amount.” And then, one by one, all three pulled out during the month of March.
Now we’re cutting burn, like everyone else. We went from $170,000 a month burn to $70,000, and if we get the PPP — we nagged Chase enough that we actually got someone to fill out the forms with us — that will get us down to $20,000. Everybody, including me, is either at 50% salary or equity only. The day I had to make the Zoom calls to our employees letting them know we were cutting salaries was one of the most difficult of my career. Our only outstanding debt is to our legal team, who have been very kind and put payment on hold for now. We’re not paying rent. We already had a…