The Term Sheet: A Startup Thriller Novel (16 page)

D
avid’s
little hacienda apartment was finally coming together. When Megan left, it seemed like she had taken the soul of the place with her. But little by little, David found cheap items at yard sales that made the place feel more like home again. One weekend, he picked up a pair of nice old wooden chairs from a free pile on the side of the road a few blocks down. When he found them, they were in pretty bad shape with a bunch of bangs and nicks and loose pieces hanging off. But with a screwdriver, a couple long screws, a piece of sandpaper, and a small tin of clear finish (a grand total of $6.28 from Ace Hardware), they looked pretty good. For his dining room table, David picked up an old door and four posts at a salvage shop for twenty dollars and a can of grey spray paint. He used these little projects to stay busy when he wasn’t working on Cryptobit.

Andrew joined David on his morning runs. But due to Heather’s situation, the runs were more like somber walks. As they made it back to David’s apartment, Andrew fell onto the black leather couch that David bought the week before.

“I can’t believe you found this at Goodwill. The Goodwill guys must be making out like bandits.”

David wasn’t paying attention. He sat at his computer and logged into his bank account. He stared at the balance. After paying the invoices for the contractors he had hired and this week’s rent, he wondered if he had enough to pay the hospital bill.

“How was your sister this morning?”

“Good, I guess. I thought she smiled, but the nurse told me it was just a reflex.”

“They know when she’ll wake up?”

“Not yet.”

“Sucks.”

They both didn’t say anything for a while.

“When did the Rocketship guys say they would get back to you?”

“Was supposed to be this week, but who knows. It’s Thursday, so if we don’t hear back by tomorrow, it probably won’t be until next week.”

“What’s taking them so long? Didn’t they know by the time you walked out of the room whether or not they were going to invest? You told them I was back in, didn’t you?”

“Yes, I told them. I don’t know what’s holding them up. But this whole thing has been so confusing, I don’t know what to expect any more. Just when I think things are going to work out, they fall apart again. I should get back to work, though. We shouldn’t put our whole lives on hold just for a stupid email.”

Andrew jumped up from the couch.

“No. I know just what you need. And it’s not work. Come on, you need to get your mind off things. Let’s go to Carson Hot Springs.”

“I should probably just go back to the hospital in case Heather wakes up.”

“Just take a little time away. Clear your head. Lots going on. Trust me.”

“Okay.”

Upon arriving at Carson Hot Springs, David and Andrew walked into the white historic hotel that looked like it had been pulled out of a Wild West ghost town. The hundred-year-old building hadn’t been used as a hotel for years since a modern resort had been built around it. But you still had to check in and buy your tickets for the mineral bath soak in the main lodge.

“Two soaks, please,” said Andrew.

A large old man with a wart on his nose put down a newspaper, the
Carson News
. David snuck a peek and noticed he was reading the obituaries. The man wiggled up to the counter in no rush, as if David and Andrew had interrupted his important work. He looked the two young men up and down and took David’s credit card without saying a word.

“Is the place pretty empty?” asked Andrew.

The man grunted.

Andrew didn’t seem to notice the grunt and continued: “Can I ask you a question?”

The man swiped Andrew’s card and handed it back to him.

“I guess.”

“The new resort is huge, but it never seems like there are many cars parked out there and I haven’t seen anyone walking around the resort building. What’s going on?”

He rolled his eyes.

“The place was bought by some Koreans with more money than sense a few years ago. I guess they had a Field of Dreams moment.”

David snorted: “If you build it, they will come.”

“Yeah, well, they built it and you can guess what happened next.”

“So now it’s like a ghost resort?”

“I guess. Here, sign this and hand your tickets to Henry in the bathhouse.”

They walked out the front door. It was cold and drizzling rain, but it felt good, refreshing. They went into the bathhouse. It was dim and lined wall-to-ceiling with cedar. The room with the attendant was filled with cots sitting low to the ground. They handed their paper tickets to the attendant, a middle-aged man with a handlebar mustache reading a paperback novel. If you had seen this man walking down the street, you would assume he was a lumberjack with his checkered shirt and faded jeans.

“Take off your clothes and go to tubs three and four when you’re ready,” said the man. “And turn off your cell phones.” The attendant went to the tubs and turned the water on.

David reached into his pocket and checked his email. He only got one bar of reception and the Cryptobit email client seemed stuck. He left the phone on, but put it on mute, and stuck it back into his pants.

Stupid technology.

After they soaked for thirty minutes in scalding hot mineral-rich water with a sulfur concentration so high that the room smelled like rotten hard-boiled eggs, the attendant wrapped the friends in thick wool blankets on their cots and they lay there sweating for another thirty minutes. David fell asleep in the warm cocoon, but at some point his internal body temperature got so hot that he sat up panting and pulled off the blankets. Andrew had already gotten up and was in the shower.

David’s phone buzzed. The attendant looked over at David with a scowl, even though there was nobody else in the room with them. David picked up his pants and stuck his hand deep into a pocket. Nothing. He stuck his hand in the other pocket and pulled out his phone.

“Hey, this is David,” he whispered.

“David, this is Frank. Where have you been? Did you get my email?”

“Sorry, I was just…let me check.”

David pulled the phone away from his ear and went to his email. It was still refreshing. One bar.

“Hold on, I’ve got terrible reception here.”

David looked at the attendant, who was trying to burn a hole in his head with his stare.

“Is there a place with better reception?”

“Try outside,” said the man.

“One second, Frank.”

David pulled on his pants and ran outside, still topless. The cool rain felt good on his sweaty hot skin. David checked his phone again. Three bars. He went to his email and saw two new messages. One from Frank Atari, and one from Legacy Good Samaritan Hospital.

“Look David, you did great. Just like I said you would. I am sorry it took so long to get back to you, but we were just finalizing the term sheet with our lawyers. You should find it in your inbox now. And we’re ready to sign right now if you are.”

David clicked on the attachment and waited for it to load. Two bars.

“I am pulling up the doc now. Can you give me the net-net while it loads?”

“We’re ready to put a million dollars in at two million pre-money valuation.”

David was stunned. He stood there silently.

“David? You still there?”

“Yes, sorry. That’s great.”

“Good, so take the letter to your lawyers and let them look it over, and let Andrew see it too. Send back all your comments at once. If we can get this signed on Monday, we can be off to the races by the end of next week.”

“Wow, I’m so excited. Frank, I don’t know if now’s the right time to ask this, and I don’t want you to take this the wrong way, but my sister’s got some major health stuff going on. I’m kind of in a pickle. Can you tell me, do you think it would be possible for me to take a small loan from the million dollars if I pay it back before we need it for Cryptobit?”

“David? I can’t hear you very well. Are you still there? Did you say you had a question?”

David’s phone started beeping. He looked at the screen. It was a blocked number.

“Frank, I am sorry. I am getting another call, can I call you right back?”

“Sure.”

David accepted the call on the other end.

“Hello, this is David.”

“David, this is Dr. George Burnside calling about Heather Alexander.”

“Yes.”

“She has just woken up and is asking for you.”

“Is she okay?”

“Yes, but she is tired and in a lot of pain. How quickly can you get here?

“I’m leaving right now.”

D
oug Kensington sat peacefully
at his desk as someone on the speakerphone discussed the latest quarterly earnings. Doug hated traditional speakerphones, so when he built his office, he had the speakers and microphones distributed and hidden throughout the room. A complex piece of software analyzed in real time the sounds throughout the room so that Doug could speak from anywhere. The software could also cancel out any sounds that came from the speakers, so Doug would often listen to classical music while on a call and people would never know. He found it easier to pay attention to the drudgeries of earnings and loss statements when accompanied by Mozart’s
Requiem
.

Just as the discussion on the phone began picking up, there was a knock at the door. Doug wasn’t used to knocks. Nobody was allowed in during these calls and thanks to the clever speaker system, Khelli could simply speak into his speakerphone to covertly ask Doug any pressing questions.

The knocks got louder, more like rapid banging. Doug pressed mute and stood up. As he began walking toward the door, it sprung open. A tall skinny man in a dark hoodie burst in.

“What are you doing here?” said Doug. “I thought we agreed to never meet in public.”

“I don’t see anyone here, do you?”

Khelli burst in behind the man with a look of horror.

“I am so sorry, sir. He walked right past me, I tried to stop him.”

“It’s okay.” Doug paused. “Gabriel is a cousin of mine from out of town.”

Khelli looked at the strange man and squinted, but knew better than to mention how little they looked alike and instead closed the door.

“A cousin?”

“What the fuck was I supposed to say? You shouldn’t have come here.”

“Aren’t you the chairman here? This should be one of the safest places in the world for me.”

Doug shook his head and gestured for Gabriel to sit down.

“Why are you here?”

“Why do you think? I told you to take care of acquiring Cryptobit, and what happens? They go on national TV. Could this be more conspicuous? I came to tell you to get your shit together. You clearly don’t know what you’re doing. I think we should start coming up with alternatives.”

“Like what? Being seen in public together? Do you have any idea how many cameras caught you walking in here? Now I’m going to have to make sure the security guys lose a bunch of video files.”

“I bet Khelli is already working on that as we speak,” said Gabriel.

The speakers blurted: “Mr. Kensington, are you there? What do we do about the China deal?”

Doug waved at Gabriel to stay quiet and pushed the mute button on his desk. “Fuck the China deal. Let them come back to us when they realize we hold the leverage.”

Doug pushed mute again. “Of course Khelli is cleaning up after you, that’s not the point. We should just be communicating exclusively over Cryptobit. And the acquisition is going just fine. I told you last time to calm down. I have had to go in a slightly different direction, but things are working in our favor. Now calm down and let me get this done.”

“That’s what you said last time. I have a buddy who tells me that Cryptobit just got a term sheet. Good terms, too. Rumor is they are likely to take it.”

Doug laughed a deep belly laugh.

“You have a buddy? Who is this guy?”

“What the fuck does it matter? It’s not my side of the bargain that’s in jeopardy. I’m not the big shot trying to live a double life. I’m a nobody and can disappear tomorrow without a problem.”

Doug stood up and shook a finger in Gabriel’s face.

“Look, everything is going exactly according to plan. The acquisition is as good as done with just a single phone call. You just worry about our other, more important plans; I’ll take care of this side of things. Since you’re here, how are things going with the main plans anyhow?”

Doug sat back down and made himself comfortable.

“We’re on track.”

“It’s critical we have no mistakes. If we slip up even a little bit this time, the whole thing falls apart. We need to kill at least half of Congress to cripple the system. If only a few die, there won’t be a government shutdown. If only a handful die, the shutdown won’t last long enough to make a difference. We need to ensure that the government shuts down long enough for the country to break free from the tyranny of big government, and the only way they can ever start it up again is by having a permanently smaller government.”

“I know, I know. You’re preaching to the choir here. We’ll be ready. The car bombs are almost finished now.”

“Let’s go over the plan again.”

Someone on the phone started asking for Doug again, but he didn’t respond.

W
hen David saw
the caller ID coming from Doug Kensington, he wasn’t surprised. He had assumed that Doug saw
Pitch Deck
and wanted to buy their scraps at some bargain basement price. David had prepared himself for this moment and knew just how he was going to turn Doug down. At first, he would feign surprise. Then he would explain how well things had been going since the show aired. He could talk about the investor interest picking up and how much consumer interest the show had given him. He would explain how he was deeply flattered, but that things have changed for Cryptobit. They were now in a dramatically different situation than the last time they had talked. He would finish by saying that he appreciated the call, but wasn’t interested in making a deal with him at this time.

But when he answered the phone, Doug didn’t bring up the show at all. In fact, Doug’s call was brief and his tone was angry.

“David, I know it’s a long drive to Seattle, but I need you here. There is something important that we need to discuss. It’s sensitive, so you will need to be here in person.”

David just said: “Sure.” As soon as he had said the word, he regretted it. Where were his balls? He didn’t need Doug any more. The drive was long and painful and Doug was probably just going to make him another lowball offer anyhow. This was going to be a waste of time.

David had a venture capital term sheet in his hands. A real offer from people who thought he could do something big with his company. He didn’t need to roll over and give in to the first acquisition offer that came his way. He had options. It felt refreshing and freeing. So much of the last year, David had felt repressed or judged. Now he was the one holding the cards. And it felt good.

So why had he said yes? Especially so quickly, without even thinking about it. Maybe it was Doug’s tone. It had so much authority to it with that slight tinge of anger. It reminded him of the tone his dad used to use when David had done something wrong—a mix of annoyance and frustration. Did he have to follow through on the visit? He could just as easily get some much-needed rest instead. He could wake up fresh in the morning, review the VC term sheet with his lawyer, sign it, and never have to think twice about Doug Kensington and his low-ball offers.

But something was nagging David. Maybe Doug was angry because his team had totally failed again on System 360. Maybe he realized he made a mistake lowballing David and decided to make him a real acquisition offer. He could be turning down tens of millions of dollars. He couldn’t let it go. He had to know what Doug wanted to tell him. He jumped in his car and began to drive.

The night was cold and dry. There wasn’t much traffic on I-5, just a few big rigs. When David arrived at System headquarters, it was 10:43 p.m. He made a couple pit stops and caffeinated himself along the way, but made good time since Doug had called him at around eight.

David could see a security guard at the front desk. He looked almost military, with buzz-cut hair and broad shoulders. David knocked on the window and the security guard looked up at him with a frown. He shook his head and pointed firmly at his wristwatch. David waved at him in an attempt to get him to come over so he could explain the situation, but the guard shook his head and frowned even deeper. He exaggeratedly mouthed the words: “GO AWAY,” while pointing to a gun on his holster. David rolled his eyes and pulled out his phone. He scrolled through the history and called Doug’s number. Khelli answered at the first ring and told him she would be right down to open the doors.

Ten minutes later, Khelli appeared and came to the front door with a smile.

“David, thanks for coming. Doug’s expecting you. I hope the drive wasn’t too much of an inconvenience.”

David walked past the guard and stuck out his tongue. The guard slowly shook his head back and forth. They arrived at the top floor and Khelli brought David to Doug’s office, stopping outside the closed door.

“He’ll see you in just a few minutes. He is just wrapping up an international call.”

David sat on a modern plastic seat. Wanting to be prepared at a moment’s notice, he resisted the urge to check his email, but ten minutes later he realized that a few minutes could actually be a while. He pulled out his laptop, linked up with his phone’s hotspot signal and began his normal routine of checking things. First his email: spam, Google Alert, newsletter, a message from Andrew asking where he had to meet to sign paperwork. Then he checked the stats: 313,002 signups, servers were under very little load, everything seemed okay. Then news sites:
TechMeme
,
Re/code
,
TechCrunch
. Khelli looked up from her desk.

“Okay, he’s ready for you.” She gestured toward the large door.

“Thank you.”

David walked in, trying to muster as much confidence as he could.

“David,” said Doug with a broad smile, standing at his desk and gesturing for David to sit on the semicircular white couch in front of his desk. “Good to see you. Please, have a seat.”

David felt intimidated and unsettled. The office was so modern, clean and geometric. It was sterile. He felt like he had stepped into another universe.

“What was so important that I had to drive all the way up here?”

“We can get to business soon. First, how are you? How was the drive?”

“Fine.” There was an awkward pause.

“I see,” said Doug as he sat down with a grand gesture. “Well, I guess I’ll come out and say it: David, I think I made a mistake last time we talked. I should not have given in to the pressures of my company at the time—I am the chairman, after all. I should be able to do what I think is right. I hope you aren’t offended by how I treated you last time, but I’d like another chance to buy your company.”

I knew it!
thought David.

“Sorry, Doug, but the company isn’t for sale any more. We’re about to close a round of funding from a VC.”

Doug looked puzzled. Then let out a condescending laugh.

“Everything’s for sale, David. It’s only a matter of price.”

David’s pulse quickened.

Doug continued. “When I was a young kid, my father died quite unexpectedly. He left my mother and I with little more than credit card debt and some land with a tiny house he had inherited in Germany from his dad. There wasn’t much left in the checking account, and my mom hadn’t been part of the workforce in years. It was up to me to figure out how to get my mom and myself out of that pickle. Can you tell me what you would have done in my shoes?”

“Sell the land?”

“Certainly, that was my first thought too. I reached out to a realtor in Germany who seemed more than eager to help. In just a couple days, we had our first offer in hand. Apparently, my dad had fielded many offers for the land in the past. They wanted to bulldoze the small house and build some new restaurants or something. Anyhow, he had rejected them for years. Now that he was dead, it was finally their chance to get their hands on this land. The timing worked out well, because my mom and I could barely eat and had already missed a payment on the mortgage. Do you know what I did next?”

“Sell it?” asked David.

“Of course not, David. No. You still have a lot to learn, son. I turned down the first seven offers. It took two months of scraping by and odd jobs to make the rent. But in the end, I got four times more money than the initial offer. You see, timing is everything in business and if you don’t have time, people will take advantage of you and pull you apart like a crab eating a corpse on a beach. Do you understand what I am trying to tell you here?”

“I think so,” said David.

“Good, so let’s skip the fancy term sheets and legal expenses and get down to it.”

Doug opened his desk and pulled out a white sheet of paper and a pen. He scribbled something on the paper and folded it in half. He slid the paper to the other side of the desk and David picked it up.

“Before you open it, I need you to understand something. There is no wiggle room for negotiation here. I may have made a mistake last time, but this time I am dead serious. Take it or leave it, this is my best offer.”

David’s hands and feet were drenched in sweat. He couldn’t bring himself to open the heavy paper. He tried to do some quick math in his head. If Doug was trying to tell him that this offer would be four times as much as the previous one, then five hundred thousand dollars times four was two million dollars. Split between him and Andrew and they would both be millionaires. Not what he was hoping to hear, but certainly something he would have to think seriously about. He could always just take the money, put in a few years at System, and then invest it in his next startup. Plus, two million was the same value the venture capitalists had come to. If he took the million in investment at the two million-dollar valuation, he would still own a third of the company.

“Well, are you going to open it?”

David nodded. Slowly, he opened the piece of paper. He tilted his head to the side, squinted and pursed his lips.

“Is this some kind of joke?” asked David.

“As I already explained, this is not a joke. This is the final offer you will get from me. It’s the best I can do given the circumstances.”

“I can’t take two hundred and fifty thousand dollars. That’s half of what you originally offered. Is this supposed to be my reward for holding out? For having put together an offer from top-tier venture capitalists?”

“David, you have clearly misunderstood the point of the story. I was trying to explain that time changes things. Sometimes for better, sometimes for worse, like it did when my dad died and left me to take care of my family. For you, unfortunately, time has changed things for the worse. I sympathize with your situation. I’m sorry you took it the wrong way.”

“What do you mean that time has changed things for the worse? Things are better for Cryptobit than they have ever been.”

“How much cash do you have left in the bank?”

“None. But that will change in two days when the venture deal closes and wires us a million dollars.”

“There you go counting chickens again, David.”

“What do you mean?”

“What do you think Rocketship Ventures will say when they see this?”

Doug slid over another piece of paper he took out of his desk. This one was full of printed words—it was a legal document. David read the headline:
Cease and Desist
.

“This is baseless. It’s all lies. They’ll figure that out right away.”

“You know, that might be true. And if you only had enough money to pay your contractors and server fees and keep bankruptcy at bay, it might just work out in your favor. But that’s the problem: when you run out of time, you run out of options. Given your current situation, I think you should give my offer another look. I know you can’t move forward on this without your partner’s approval, so I’ll give you until tomorrow at sunset before this document falls into the lap of your precious VCs. I suggest you be persuasive.”