The Term Sheet: A Startup Thriller Novel (11 page)

“
Y
ou clean up nice
,” said Andrew. On the
Pitch Deck
producer’s suggestion, and using the last of his available credit, David had bought his first suit. It was a trim navy suit with a crisp white button-up shirt and simple skinny tie. “You almost look like a banker.”

Andrew handed David a drink.

“I can’t have this,” said David. “We’re about to go in front of seven million people.”

“You know this isn’t broadcasted live, right? Hell, even after they tape it they might not air it. Especially the way you look right now. Drink it.”

“But seven million people will see it.”

“Focus. We’re only pitching five people right now. And the only two we care about are Tom and Atlas. The other investors wouldn’t understand the first thing about our business. I need you relaxed right now. You’ve been brooding all week.”

“I haven’t been brooding.”

“Okay, whatever. So, have you heard from her lately?”

“No.”

“Drink it.”

David opened the little bottle from the minibar and stared at it. Then he threw his head back and downed it in three gulps. He didn’t usually drink anything harder than wine.

“One way or another, I’ll be glad to get out of this crummy hotel,” said David. “Los Angeles does not suit me at all. It’s just weird that there are places like this where the sun rises and sets at the same time every day.”

“You guys ready?” said Jesse with a rolling chuckle. “It’s time. Are you pumped up yet? Here, have a Red Bull with coffee.”

D
avid and Andrew
stood silently in the dead center of the studio with bright lights blaring down on them. David began sweating and wondered why none of the investors seemed to be sweating under similar lights. Audrey Kinsey and Sandy Donovan began whispering to each other. They shot glances at David and Andrew.

“Why are they acting like we don’t even exist?” whispered Andrew.

The crew had already adjusted their cameras and done sound checks. David couldn’t figure out why they hadn’t started yet. If it was to build tension, it was working. Albert Schiller shouted to get Atlas Vanguard’s attention. They were talking about a basketball game from the night before. Albert and Atlas had apparently made a bet together and lost some serious money.

“Hey, you okay?” asked Andrew out of the corner of his mouth. He gave David a nudge. David didn’t respond.

Ryan Dillard was typing on his smartphone and Tom Lewis started laughing.

“You really bet against my team?” said Tom.

“Excuse me, this is a private conversation,” said Atlas.

Ryan looked up from his phone. “You guys bet against Tom and didn’t let me in on it? You guys are dead to me.” He grinned and went back to his phone. Nobody laughed.

“What the fuck, man,” whispered Andrew. “Are you freaking out on me? You’re going to snap out of it, right?”

A makeup artist went up and started reapplying makeup to the investors, starting with Tom on the left.

“Hey, Atlas, switch seats with me?”

“No, this seat gives me a competitive advantage. I get to be closer to the action,” said Atlas. “If there’s another bidding war, I want to be as close as possible so I can hug my way into the deal.”

The investors continued talking, and David continued silently going through the pitch in his head.

“David,” shouted Andrew. “Come on. Go. They said go. Go.”

David forgot his first word. He had it memorized so that each word naturally led to the next in a logical flow—an inevitable progression like a waterfall. It included stories, just like Andrea had suggested. He’d made it personal. He would talk about how his girlfriend’s mother thought Edward Snowden was a traitor until he explained that the government stored every message and email ever sent. Then the mother realized she had talked about cheating taxes on to a friend over a text message and her eyes went wide and she became addicted to managing her privacy.

But it all started with one word. And he couldn’t remember that word. It was a simple word—nothing special. Like “so,” or “thank you” or something common like that. But he couldn’t for the life of himself figure out which word it was. He needed that word to unlock the speech. The harder he tried to think about it, the more it escaped him.

Andrew’s face showed total panic. David’s face was a blank. The cameras silently zoomed in close, as if thirsty to capture the beads of sweat forming on their foreheads in glorious HD. Nobody said anything for what seemed like an eternity. Then Andrew finally broke the silence.

“Cryptobit is an encrypted chat app built to keep everything you say private and secure,” said Andrew in a hurried breath. “We’re looking to raise—”

“Hold on, buddy. First, who are you guys?” said Atlas.

“Oh yeah. Greetings, I am David Alexa—shit. No. I am Andrew Smith, and this is my partner David Alexander, and we are looking to raise one hundred thousands dollars for a ten percent stake in our business.”

Andrew hoped they could edit out the word “shit” and decided to just keep going. He had heard David do the pitch so many times that although not perfect, he was sure he could do it justice.

Greetings,
thought David.
That’s the word. Greetings.

“So which of you would like to join us in reclaiming our natural-born right to privacy?” said Andrew on a high note.

“So which one of you is Jobs and which one of you is Wozniak?” asked Tom.

“David came up with the idea and wrote the code. I do the business side of things,” said Andrew.

Audrey looked up after writing a note and asked: “Granted I am not as technical as some of the other investors here, so maybe I misunderstood, but couldn’t this be used by really bad people to do really bad things without the fear of getting caught?”

At this, David finally spoke. “Yes, but people can do really bad things with pencil and paper. Nobody would suggest it’s the fault of the pencil and paper, would they?”

“Sure, but the NRA claims guns don’t kill people even though there is plenty of empirical evidence to the contrary,” said Audrey.

“Guns are inherently violent objects and can even accidentally be used to do harm. You don’t have to lock Cryptobit away to keep it out of the hands of children who could accidentally harm themselves.”

“Audrey, you just don’t get it,” said Atlas. “Our privacy is being invaded every day by everything around us. Mobile phones share our location, cameras are recording our actions. You talk about the crimes people could do with Cryptobit, but what about the crime of invasion of privacy being committed against the American people? We should feel free to talk with our friends in confidence without the worry that there will be a permanent record of everything we say. The world needs apps like Cryptobit to protect our rights to personal privacy in a digital age.”

“No, Atlas, I understand that. I just don’t like the potential for abuse of Cryptobit. People could use it to buy and sell drugs, and I wouldn’t want the liability. Guys, this is not my kind of deal. I am out.”

Ryan jumped in. “David, Andrew, I get it. You guys are clearly not trying to be drug dealers here. You are just trying to make money.” Ryan enunciated the word money extra loudly. “The problem is, you didn’t tell me how you were going to make money, and at a one million dollar valuation, you had better have a good way to back that up with revenue. So how much money are you making right now?”

“None yet,” said David.

“Wooooow,” said Ryan, Albert and Sandy.

Atlas and Tom looked at each other and rolled their eyes.

“Ryan, you are so shortsighted,” said Tom. “This is a growth play, not a revenue startup. Not everything has to make money on day one.”

“There is a name for things that don’t make money. They’re called charities. And I don’t invest in charities. Let me make this easier on you guys, I am out,” said Ryan.

“Guys, ignore that bozo. Tell me about your numbers. What kind of growth have you had?” said Tom.

“We have been letting people into our private beta as quickly as possible, but right now our waiting list has over a hundred thousand people signed up over the last two months,” said David.

Impressed gasps came from Albert, Sandy and Atlas, but Tom just smiled.

“And how many are using the app?”

“Over thirty-six thousand.”

“Guys, I like you,” said Sandy. “I like privacy. But I can’t help you. I think there are other investors who could add more value than I could, so for those reasons, I am out.”

“Let me just recap,” said Ryan. “Three investors are now out: Audrey, Sandy and myself. That leaves you with just Atlas, Albert and Tom.”

“I like everything about this idea,” said Atlas. “I think that we have a basic human right to privacy and that technology has gotten ahead of itself to a dangerous degree and we’re unwittingly entering a world of Big Brother. Unlike some of the other investors here, I can clearly see the strategy. Grow the user base as quickly as possible and start monetizing after you have critical mass by providing value-added services on top. Since it is decentralized and peer-to-peer, you don’t have costs that grow with adoption, so you can afford to not hamper growth by asking for money. That’s smart. I’d like to make you guys an offer.”

David couldn’t believe it. After screwing up so badly, they were still going to get an offer? He and Andrew looked at each other and beamed.

“But like Ryan, I am not sure I can justify the valuation. Look, this is a great idea, but there is a lot of risk and it will need a lot more investment to fully take it to market. I want to offer a hundred thousand for thirty percent of the company.”

“What, are you crazy?” said Ryan. “I forbid you from making that offer. You are in loony town. Three hundred thousand valuation for a company that hasn’t generated a single dollar yet?”

“I’ll go in with Atlas if he’ll have me,” said Albert. “I’ve been wanting to invest in more tech plays, and this makes sense to me.”

“Sure, Albert, I’ll do this deal with you.”

David and Andrew looked at each other. David tilted his head and raised his eyebrows. Andrew said: “Tom, we haven’t heard from you yet. Would you like to make an offer?”

“Wow, hey. I would like to know what you think of our offer? You didn’t even acknowledge us,” said Atlas.

“I am sorry, Atlas. Thank you for the offer, I just want to see if there are any more offers first,” said Andrew.

Tom smiled and looked over at Atlas and Albert with a smirk.

“What’s your go-to-market plan?” asked Tom.

“The app spreads virally—our marketing plan is to make the best product possible,” said David.

“Look, guys, I love this space,” said Tom. “I have made a few similar investments already, and I am looking to make a few more. But this has been done before. Snapchat, Tinder, Path, Signal. The whole privacy for mobile chat space is way crowded and you don’t have enough differentiation.”

“Our encryption is light-years beyond anything those guys do,” pleaded David.

“Yes, and if you had said that your go-to-market plan was to expand your encryption system to include more traditional messaging systems, like email, I might be more interested. I think the encryption system is the valuable part, not the mobile app.”

“I have been testing the encryption system on email. I even use it for all my own email now,” said David.

“I like you,” said Tom. “But the pitch is weak, your app isn’t differentiated, and you don’t have a clear vision for the direction you want to take your company. I am out.”

“Tom, thanks for your consideration. Atlas, would you do a hundred thousand for fifteen percent?” asked Andrew.

“No. We’re the only deal left. Tom made some good points, and we have to figure that into the risk we’re taking.”

David nudged Andrew.

“Can we talk about it in the hallway?” said Andrew.

“Yes, but be quick,” said Atlas.

Andrew and David walked to the hallway and began to whisper.

“David, we need to take the deal,” said Andrew.

“No way, this is typical negotiation tactics. If they will do it for thirty percent, they will do it for twenty percent. We just have to stick to our guns.”

“We can’t fuck around here,” said Andrew. “You freaked out and left us hanging. I saved the day by doing your damn pitch. Trust me, let’s close this thing.”

“If I can’t close it at twenty percent, we can just go through with the acquisition,” said David.

The guys walked back.

“Atlas, Albert, we really appreciate the offer. But we can’t do the deal for anything more than twenty percent.”

D
oug’s phone rang
. He put it on speaker.

“They just finished taping. They were offered a deal but turned it down.”

“Good,” said Doug, and he hung up.

He sat silently for a moment and then picked up his phone and stepped out of his office.

“Khelli, get David Alexander on my cell right now. Tell him it’s urgent. Is my car ready?”

“Yes, sir. It’s waiting for you right outside. But you’re supposed to be on another call right now.”

“I know, they can wait.” Doug’s voice was calm and smooth. He walked to the elevator. As he stepped in, his phone rang.

“Sir, I have Mr. Alexander on the line,” said Khelli.

“Give me a moment,” said Doug. He waited to reach the bottom floor. “Okay, put him through.”

“Hello?” said David.

“David. Hi. I am sorry to call without notice, but something happened recently that I needed to talk with you about. Am I interrupting anything?”

“Not exactly.”

“Okay, hold on, let me just flag down my car.” Doug found his driver and ducked into the backseat. “You see, even though System is a private company, we make more money than many public companies. In fact, we have been considering the idea of going public for a while now. We have had pressure from our investors, and I can’t go into details as to why, but right now I can’t actually follow through on the acquisition we offered. It’s not that I don’t want to. It’s just some politics that need to smooth over. This happens every year around this same time—I should have anticipated it better. But it will blow over and we can make the acquisition happen in six months. We can pick up right where we left off.”

“Wait, what?”

“Sorry, let me be more clear. We can no longer acquire Cryptobit. At least not right now. Maybe in three to six months. Hey, turn here, traffic’s backed up on the freeway.”

“Three to six months is like three to six years in startup land.”

“I know, I know. A lot will change between now and then. I’m sure I’ll have to pay you a lot more money then for the progress you will have made. But for now the deal’s off.”

Doug wished that he could see David’s expression.

“But we signed the term sheet.”

“Yes, we did. But remember, the term sheet was non-binding. Not legally enforceable.”

“Then why did we sign it?”

Doug grinned.

“It was in good faith, I promise. But we can’t foresee all the events playing out this way. Look, David, I am sorry. I’m sure this throws a wrench in things, but it’s just a small setback. You’ll get past it—you’re an entrepreneur, this will just give you some character.”

Doug knew this wasn’t going to be a small setback for David. It would likely be a mortal wound. His partner wasn’t going to be happy, but Doug was trusting his instincts.

“Okay, look—I have to go now,” said Doug. He hung up and immediately started dialing another number.