Phil Libin talks about Evernote's brush with collapse during the 2008 financial crisis. A Swedish user wired $500,000 that saved the company when funding dried up and shutdown seemed inevitable.
Tim Draper, like, when he talks to his students, he says, and I think this is true of Evernote now and back then, delighting users with the actual product, that that should be the ultimate goal. Let's talk a little bit about one night where Evernote was out of money.
Yeah.
And, you know, one of these investors that you probably just mentioned, something happened. If the crowd could know a little bit about that story.
Yeah, so we, one of the biggest early mistakes that I made at Evernote was The start was too complicated, like I said, because it was 2 teams that joined together. And so it was not like— it was not a textbook start. It was— we had more structure where our cap table was complicated. We had all these contracts going back and forth. And that was one of the things that made us unfundable, because at an early stage, like, you know, if you're doing anything like not standard in your structure or your documents, like investors aren't even going to pay attention because you have to like prove that you're even worth it for them to like understand some new structure. So I would never do that again. I would like— right now I advise everyone to just be as clean and textbook as possible. Just start clean and just make it as straightforward as you can in terms of structure. Don't try to innovate in the structure. So, it took us— we spent over a year cleaning up all of our structure so that we could be a normal, clean startup that was more investible. And we finally got a term sheet from a European investor for $10 million. It was going to be our first big A round. We were already pretty big. I think we already had like 30 people. And, but we spent all— we spent about 6 months in due diligence with them because of the complicated structure. So it was like about 6 months to like clean everything up, to like redo all the contracts. It was like torturous. A, because it was actually messy on our part, and B, like these like European investors are just like more sticklers for all sorts of random stuff. So we spent 6 months with them, and it was supposed to close in October of 2007— no, 2008.
2008.
October of 2008. And on the day that it was supposed to close was the day that Lehman Brothers went out of business, the market crashed. It was like the height of like the bloodbath in 2008, of like the biggest financial crisis ever. And they, on the closing day, they called me and said, we, you know, we just lost like 60% of our fund value in one day, so we're not going to make this investment. And we were totally screwed because at this point we had only 3 weeks of cash left in the bank. And it was like Sequoia had just sent around the memo, the RIP good times memo, to all their companies saying, like, you'll never be able to raise money again. You have to— like, everyone has to go heads down.
How big was the team at that moment, by the way?
Like 30-ish. And so I spent the week, like, frantically, like, calling everyone I know, because we hadn't been talking to other investors in 6 months because we were in due diligence with these other guys who just backed out. So, I, like, spent a week just scrambling, trying to find anything, anyone that would give us money, but, you know, it was impossible. Like, daily, everything was plummeting all around us. And about a week later, we had 2 weeks of cash in the bank, and I was sitting at home at 3 AM, and I decided, okay, like, we're done. We have to, like, I have to close down the company the next day. So, I'm going to go to bed, wake up the next morning, go to the office, and just shut down the company, because we only had 2 weeks of cash left, and you can't just go to zero. You have to, like, pay some final bills and stuff just to, you know, stay out of jail at the end. So I just decided I was going to go home, go to work in a few hours, and shut everything down, and tell everyone that we didn't make it. Sorry. And right before going to bed, I got this email from some random guy from Sweden at 3:00 AM. And the email said, hi, I'm a random guy from Sweden. And I just wanted you to know that I started using Evernote a couple of months ago, and I love it. It's changed my life. It's made me totally better organized. I just feel really good. I'm, like, really happy that I started using Evernote a few months ago. And I felt, you know, I felt a little bit better because I was thinking, you know, if you like, at least I improved the life of one random guy in Sweden, like, that's something. And then he went on in the email to say, so I'm just writing to see if you're looking for any investment. I was like, why yes, we are looking for an investment. And then I didn't go to bed, I stayed up. And like 40 minutes later, I was on a Skype call with him. And, you know, I told him what was going on, and 2 weeks after that, he wired us half a million dollars. And it was that half a million dollars which let us— I had stopped paying myself and the executive team, and we pared everything back, but that half a million dollars let us survive for probably another 6 months. And that was enough to actually get enough traction where now we had real stats about what was happening with the product, and then we were able to raise all sorts of other money. So the company was definitely saved by that. This guy who still wants to be anonymous in Sweden, it was just a, you know, he was a user, he was a fan, and he just kept the company alive. Thank you.
