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Partnering with a Key Director

Peyton Anderson, Chief Executive Officer, Affinergy, Inc.

I always valued my board of directors coaching and mentoring. However, not until I was faced with not being able to make payroll and pay a strategic vendor, did I fully recognize the value of a key director on my board.

The four cofounders of SciQuest, Inc. were all passionate in our belief that Internet commerce was a huge opportunity. And we were right – but when we started in 1995 we were about two to three years too early. We went eighteen months without a paycheck, collateralized our houses for a $100,000 SBA loan, and ran up about $225,000 of credit card debt to cover business and personal expenses. We bought a little more time by securing a $100,000 investment from the father-in-law of our first employee. But that money was gone and the tank was totally dry.

I was the lonely CEO who knew that in addition to not paying the founders, we had hit the rocks and could not pay our one employee, whose father-in-law’s money we had now spent, or our software vendor, who was the critical partner that built and hosted our site.

It was risky and frightening. If we did not pay the vendor, they could turn off our site and shut us down totally. I could not envision a way out. Instantly, I began wondering how I would ever climb out of deep credit card debt and how I could convince the bank not to take my house. Next, I contemplated if bankruptcy was a good option or not.

That’s when Dwight stepped in and saved the day. Dwight was our first, external board member as well as an early adviser and mentor. He had been working with us for six months to shape the business, negotiate our first customer deal, and get the business ready for our first round of angel financing. Dwight gave me invaluable advice, was a true confidant, and never asked for any compensation.

It was late on a Wednesday afternoon when Dwight called and asked if he could stop by to review the diligence documents and financial statements with me. He was actively helping us build a syndicate of angels to put the financing round together but had not yet committed himself to invest in SciQuest. We needed him to be positive and comfortable for us to have any hope of getting the full round. Needless to say, I was scared that he might find out how desperate we were.

After about fifteen minutes in my office, he asked the question that had been burning in my mind for days. “How are you going to make payroll tomorrow and pay the software vendor?” As most insightful directors do, he already knew the answer to the question before he arrived and before he asked it.

We truly had no options to pay them. I answered honestly and a bit optimistically, “I don’t know, but I have twenty-four more hours to figure it out and maybe the weekend if we are lucky.”

Dwight said, “Peyton, I believe in the founders and your passion for this idea. I think it is a good market and you guys will figure out how to make it work. I am ready to invest today.” He reached into his pocket, pulled out his checkbook, wrote a check for $25,000, and handed the check to me. The next day, I had the attorney draw up the convertible note documents. We cashed his check, made payroll, and kept our business alive.

Over the next few months we cobbled together funding from angels that ultimately was a $2.2 million round. Twelve months later, venture capitalists were getting enormously excited by Internet commerce. Over a twenty month period, SciQuest raised about $50 million in VC money and $128 million through an IPO in November 1999.

Dwight believed in us at a critical point in our business and remained a director on our board for a year or so until the big VC’s took his spot. He remained my confidant and mentor through the scale up and through the scale down as we laid off lots of people. His keen insight, support, and coaching – not to mention the investment he made when we were completely out of cash – saved my day more than once.

© 2006 Peyton Anderson. All rights reserved.

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