I recently read a post from a colleague at Goodworks Ventures, an impact investment fund in rural Montana, that hit home:

There is a lot of discussion around failure and startups these days. Fail fast. Failure is the way you get to success. Failure is a badge of honor that makes you more investable. All of these notions have some measure of traction in large well-funded entrepreneurial communities like Silicon Valley or New York or Boston, but that is not the landscape of Montana. Failure here means that the risk you took with your money, your friends and family’s money and perhaps, investor money, did not pan out. That you will now have to figure out what to do next in a place where jobs are not easy to find. Where going home for Thanksgiving Dinner might be more difficult than it has been in the past.”

The Flexible Capital Fund (a.k.a. the “Flex Fund”) is a Vermont-based and mission-focused investment fund that provides risk capital to help businesses in Vermont’s food system, forestry and clean energy sectors grow. We’ve learned firsthand that investing in Vermont’s innovative businesses that are putting everything on the line to help make the world a better place is, well, “risky business.” And, with risk, sometimes comes failure.

We don’t talk about failure in business enough, even though talking about it and the reasons why it happens can help us learn valuable lessons. I want to bring attention to those entrepreneurs who put their whole heart into their business, who care deeply about their employees and support their communities but end up needing to close for whatever reason. When a business closes due to market conditions, family issues, financial challenges or retirement of the founders – it seems like we forget that those who started and ran the business are people, not just the legal entity they founded.

In the past year, three Flex Fund portfolio companies closed their doors, all due to different circumstances. This is out of 14 total companies funded. I’d say that isn’t a bad track record but even one small business closing in Vermont is enough to impact not only the entrepreneur’s life, but the lives of their employees, customers, vendors and the communities they serve.

When things don’t go as planned, and a business needs to wind down, we can find ways to do this with dignity and respect for what was built by the entrepreneur. As an investor, I’ve seen how easy it is for funders to get caught up in preserving “capital and collateral,” considering only what’s at stake for their organizations. We can do better – remembering that we need to consider the long-term, bigger picture of how our actions impact real people – the entrepreneurs, the employees, the other funders in a financing deal, and the community.

As hard as it is to start up a business, it’s even harder to wind one down when things don’t work out. We’re pretty good in Vermont at helping startups find resources and capital. We’re not as good at helping an entrepreneur close up shop so they can help their employees find other work, minimize losses to their investors and lenders, and find a way to move on personally. Sometimes it may require patience or just a little more time to pursue another avenue to find a better outcome than the forced liquidation of a business. I’ve seen things turn quickly from what was moving towards an orderly sale of a business (with more than a few interested buyers) to a forced liquidation scenario which dropped a lot of dollars off the table because patience had run out.

Entrepreneurship is hard. Starting something from scratch, growing it, financing it, hiring and keeping good employees – is hard and stressful work. An academic study on the mental health of entrepreneurs found that only 7 percent of the general population reports suffering from depression, but 30 percent of founders report dealing with its effects. That statistic is staggering but entirely believable. Entrepreneurship is a deeply personal journey, and it’s difficult to separate your identity from the business you’re trying to create. Business setbacks can seem like personal setbacks, and this is where depression can quickly take hold.

When a business fails, I hope we as funders can allow entrepreneurs the time to work with their creditors and investors in a way that will maximize the outcome of repayment and minimize the detriment to entrepreneurs and their employees. When entrepreneurs work diligently and in cooperation with their funders, I’d like to think that we in Vermont can set the example of how to do things differently – treat founders with respect and understand they are grieving for the loss of their business, which they put their heart and soul into building. After all, these entrepreneurs are our neighbors, our family, our colleagues, our community members. And, they took the real risk, didn’t they?

Janice St. Onge
Flexible Capital Fund

About the author: Janice St. Onge is President of the Flexible Capital Fund, a mission investment fund providing risk capital to growing businesses in Vermont’s food system, forestry and clean technology sectors. Janice brings economic and business development as well as financial expertise to the organization, having served in the technology and financial services industries, as well as higher education and state government sectors during her 25-year career. Janice is a member of the Vermont and NNE Women’s Investors Networks, and serves on the Clean Energy Development Fund Board, and advisory board for the Small Business Development Center.