Plunge from the Top of the World

Renu and Kedar Gupta at Machu Picchu in Peru. (Courtesy of Kedar Gupta)

(Editor’s Note: This chapter is excerpted from Kedar Gupta’s business biography, “Carving My Destiny,” with permission from the author. In 2003, GT Equipment, based in Merrimack, was a rising star in the solar and semiconductor industries. The 9-year-old company was well respected for equipment design and manufacturing and had a growing backlog. It had recently received a $5 million equity investment and moved into a new building, financed in part with a bank loan. Right around this time, its banking partner, Fleet Bank, was about to be acquired. During the process of fine tuning their portfolio, Fleet unexpectedly decided to put the company in a default and cut its credit line to the company, although the company was still close to meeting its debt obligations.)

The turnaround advisor was not only sucking GT’s money faster than a vacuum cleaner, but he was also creating a big nuisance with our suppliers. Since he had control of the accounts payable and was not letting us process payments to vendors, they started complaining. He was also rude to most of our vendors; he did not return their calls and was unresponsive. We prided ourselves on treating vendors well and my discussions with him about treating suppliers humanely and with respect fell on deaf ears. He told me he works for the bank and will do what he feels is appropriate. It seemed like it was not in his best interest to help us survive. It was a tenuous situation, and something had to be done.

Before the bank took over GT’s finances and accounting, Renu handled human resources, accounts payable and accounts receivable. She had created an excellent supply chain relationship with vendors and clients. In many cases, we provided our vendors with advance payments. It was all sailing smoothly. GT was considered one of the premier companies to do business with. Renu was extremely bitter about not being able to talk to our vendors as she knew them well and had developed a good relationship with them. This prompted her to launch a vigorous fight against the bank agent, and she was able to take over accounts payable. She got to work by repairing the damage and personally met each supplier to hear their frustrations. Renu promised them that GT Equipment would pay their open invoices in monthly installments and requested them to continue shipping the needed parts. Most vendors liked our plan and sent us the components required for manufacturing. It was a win-win situation for both parties amidst a very difficult one for us.

The company also had to implement programs to reduce the burn rate, including a sizable pay cut for top management. All employees participated by taking some pay reduction with the promise that when things turned around, we would compensate them for their losses plus some bonuses for the inconvenience. Every employee had an option, or a form of equity in the company. As was the company’s trademark, we were in it together through the good and bad days. These were the bad days, but we knew better ones would come.

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Gradually, GT’s business started to show signs of revival. We were pitching for substantial business with two overseas customers. The first one was a $2 million business module line needed by a customer in Scotland. The second was a $14 million business module line with a company in Taiwan. In both cases, the potential clients had visited us and had  been impressed. Fitting a solar manufacturing line was a paradigm shift for their businesses and they chose us to help them make this crucial shift.

By this time, GT’s investors had noticed that Fleet Bank’s turnaround agent was perhaps not acting in good faith. They saw how ruthless and illogical he had been with his decisions. Despite GT’s unfortunate financial situation due to the workout, many current and potential customers from the US, Europe and Asia continued visiting the company to evaluate its products. Most of these customers felt GT was way ahead of its competitors regarding turnkey solar lines and related technologies. The interest of our customers in the solar turnkey line was so convincing that our investors decided to talk with the bank to find a possible resolution to our dire situation. The investors reached a preliminary deal with the bank to let GT have another year before forcing a default if we pay off $1.7 million of the outstanding loan. The two outside investors, RBC and Merchants Bank, pooled $1.5 million and asked Renu and me to pitch in the difference of $200,000 as co-investment. The investors encouraged Jon and me to accept the deal they had agreed to with the bank without telling us the full details. After the initial agreement with the bank and the investors, we noticed a drastic change in the attitude of the investors. When we tried to push for the new valuation and the closing terms, they skirted the topic, saying that they were still working on it. Before the initial agreement, they used to call me every day, saying that this deal made great sense for everybody. Now, there was radio silence and it seemed purposeful.

It was a week before the closing and I was getting nervous. I needed to understand the terms of the deal. With my persistent jostling, the investors told me that the new valuation at the closing would be a mere $8.9 million and the terms had many additional sweeteners for the investors. This was way below the original closing of $40 million about one year prior. Accepting their offer meant losing almost everything to the investors. It also meant the founders may end up with less than 10 percent of the company.

Our logical plea for a higher valuation fell on deaf ears. The investors would not even agree to a third-party valuation. They gave me no choice, and I had to surrender to their demands to save the company. It was a miserable situation. Even though this would reduce the founders’ returns drastically, accepting the valuation would avoid bankruptcy, thus preventing mass layoffs. Closing day was the last day of March 2004. Jon and I got together in the boardroom to sign the documents with other investors. In the middle of signing and closing, the investors (or so-called well-wishers) informed me that I would no longer be the CEO. One of them would take that position and, my new role would be that of CTO, which was nothing short of a kick on my rear. My throat became dry and I could feel the blood rushing through my head. Since I felt cornered in that room and had little choice, I had to agree to their demands. I signed the documents and came out for a breath of fresh air.

Renu was in the lobby and was astonished to see me so pale. She instantly knew that something was wrong.

“What happened to you?”

I told her what happened in the boardroom and weakly said, “You are now looking at the new CTO.”

Although visibly disturbed, she kept her calm. I saw a determination on her face, the depth of which I did not fully understand until later. I asked Renu to enter the boardroom and sign her share of the documents to complete the closing.

Once inside the boardroom, out of nowhere, she looked directly at the investors. “Why should I invest another $200,000 and sign the documents if Kedar is no longer the CEO?” she asked.

If you do not sign, they said, the company will shut down and file for bankruptcy.

“Do you know what my husband had when he came to this country? It was a mere $5. Do you know what we have achieved with those $5? Our daughter went to MIT and Stanford for her medical degree and is a doctor. Our son is trying for MIT. Don’t you all think I have got my money’s worth? I have no regrets. I would rather accept bankruptcy than put up with this humiliation,” she said calmly but clearly.

Renu stormed out of the boardroom without signing the documents. I froze. Then I thought about what she said. Her point was straightforward. We had done nothing wrong, and it was the bank that had acted unreasonably. “I am not going to compromise. Please go back to work and try to save the business,” she said.

I talked to Jon, who fully supported our decision—well Renu’s decision but the right decision. I returned to the boardroom and told the investors, “GT cannot accept your offer. It is one-sided and not in the best interest of the founders who have worked relentlessly to bring the business to this level.”

One by one, everyone left the boardroom. The closing was aborted. With no conclusion, Fleet Bank was ready to lock up the company within a month around my daughter’s wedding, unless we came up with another way to resolve the issue. We had no other investors interested in helping us. I knew that I had to turn the company around quickly.