Good Money After Bad
When the money already lost is the thing deciding your next move.
"The money you've already lost has no vote on whether to spend more, but it never feels that way."
Meet Nate. He sold his oil and gas investment company in early 2020, and a few months later got contacted by a struggling e-commerce company that needed a cash infusion to survive.
After we sold the company, I got contacted by an e-commerce company going through some challenges. I liked their numbers. I liked their story. They needed a cash infusion to survive, so I loaned them $200,000.
Then I got under the hood and found the business was in a far worse state than I'd imagined. Debt north of a million dollars, way more than anyone had let on.
That's the moment I should have walked away. Instead, I invested another $1 million to buy the company outright, $400,000 of my own money and $600,000 from close friends and family.
A month after buying the business, we were hit with bad news. A privacy update crippled the ads the whole business ran on, and sales were cut in half almost overnight. I kept going anyway. By that spring I was putting in $100,000 of my own money every single month just to keep the lights on.
Here's the part that still gets me. I knew for months it was dying. I wasn't confused about the numbers. I just couldn't make myself stop, because stopping meant admitting the $200,000 loan, then the $1 million investment, then all those monthly checks for $100,000 to keep the lights on were gone for nothing. Every check I wrote after the first one, I was really just trying to make the last one make sense.
Eighteen months after that first loan, I finally realized this couldn't continue, and I sold the business for pennies on the dollar. After the dust had settled, I'd lost $1.6 million of my own money and $600,000 of my friends and family's money.
The mistake was never the first $200,000 loan. It was every dollar after it. Money you've already lost doesn't make the next dollar a better bet. It just makes it harder to stop.
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