I Turned Down a $4 Million Term Sheet. Then the Coronavirus Hit.

A health care startup is now scrambling for funding after turning down a VC investment in February

In early February, Jo Schneier received a term sheet for $4 million in Series A funding for his New York City–based health startup, Trusty, which develops Medicare tools for health insurance brokers. Schneier, the company’s co-founder and CEO, turned it down. Funding deals have since dried up, and Schneier is desperately trying to cut costs so that Trusty — which had raised $3 million to date and has 14 full-time employees — can stay in business. Now working out of his Queens bedroom on a desk he borrowed from his 10-year-old son, Schneier spoke about the company’s mad scramble for cash.

The $4 million term sheet would have been really bad for our early investors — the valuation would have crushed them. So, we decided to do a seed extension for $750,000, focus on growing revenue for the next couple months, and then do the Series A. We had all these investors lined up, like ducks in a row, waiting for us to hit a milestone, which we were predicting we’d do by August 2020, so turning down the term sheet seemed like a rational choice. Then the world exploded.

We had all the money lined up for the seed extension — we even had potential investors say, “We’ll invest the whole amount.” And then, one by one, all three pulled out during the month of March.

Now we’re cutting burn, like everyone else. We went from $170,000 a month burn to $70,000, and if we get the PPP — we nagged Chase enough that we actually got someone to fill out the forms with us — that will get us down to $20,000. Everybody, including me, is either at 50% salary or equity only. The day I had to make the Zoom calls to our employees letting them know we were cutting salaries was one of the most difficult of my career. Our only outstanding debt is to our legal team, who have been very kind and put payment on hold for now. We’re not paying rent. We already had a friends-and-family rate, because we were subleasing from an investor’s business — and now our landlords have said they aren’t going to charge us.

We had all the money lined up for the seed extension. And then, one by one, all three pulled out during the month of March.

We’re also looking at whether there are other avenues we can pursue for faster revenue. We have a contract to develop a software application for a study in coordination with the National Council on Aging and Mount Sinai hospitals that is Covid-19-specific. We’re one of the few companies that has a really good handle on what’s happening with older adults. There’s a lot of risk that is Covid-19-specific and also older adults not accessing care. So, hopefully this will be both a line of business that will be sustainable and a way to use what we’ve been learning.

We started talking to some in-person accelerators that I probably would have only somewhat considered before as a potential source of funding. They’ve all gone virtual now, which actually makes it feasible, so I approached them and said we’d like you to come in as investors on our terms, not the terms they were offering us.

Right now, it looks like now we’ve secured $670,000 in funding. We were accepted into the ONramp program, which is a virtual accelerator that invests at your terms and connects you with customers like Allianz, Thrivent, and Securian. And the venture fund that offered us the term sheet came back to us at our current terms and said they had done so much diligence on us that they wanted to move forward with our terms, but just for the bridge to help see if we could grow to where we need to be for a larger round at a higher valuation. My main response is: Thank God we didn’t burn any bridges and kept that door open. The paperwork isn’t signed, and they are doing a last-minute legal review, but I slept last night for the first time in weeks.

Courtney Rubin is a journalist covering health (also wellness) and business. New York and London. Marker Medium Publication.