The flipside to “unfundable” companies are funds that waste the time of startups never actually writing checks. I won’t call them out publicly by name, but one prominent institutional lender just wasted 10 months of time of one my fledglings, and I’m sure they are sitting around as upset with us as we are of them.
First and foremost, investors, if it takes you more than three months to make an investment, you are doing it wrong. Three months from telling the investee you are interested to having the money in their bank account.
There is nothing wrong with meeting a company one year six months later starting that process. Just be clear when you are kicking the tires vs. engaged in a due diligence process. Just because you are an investor doesn’t give you the right to ask question after question after question without high odds of that leading to an investment.
What is most upsetting about this last snafu is that it took nine months before the deal was approved by the investment committee and nine months before the final terms were presented. The terms were onerous. That is the polite way to describe them. One sided would be more polite, or simply unacceptable.
If the investor had bothered to share a sample term sheet in August 2020, we would have saved them ten months of their time. And it’s not for want of asking on our side. We got general terms a few months in, but this is one reason I like to see actual investment documents rather than term sheets, as often the worst of the terms are not explained in detail in the term sheet, if at all.
Ultimately the problem here is inequity of power and a misunderstanding of needs. Funders have nearly all the power. They literally control the purse strings. With that they think they can demand one sided agreements. They can, but that doesn’t mean they should. But more importantly, too many funders have no idea the needs of the investees. They need capital and they need it now. Waiting three months to get it is a hardship. Waiting ten months is beyond unreasonable.
If you can’t keep up with the pace of startups, don’t work in startup finance. If you really want to help startups, then fix your own internal processes so that you can write checks as quickly as they are needed, with terms that make sense for both sides of the transaction, with flexibility as startup plans will change between the time you meet the startup and the time you write the check, no matter how fast you make that process.
Finally, if you can’t fix your own processes, then invest in intermediaries that can. This is why I spun up Africa Eats last year, to be a funder that can write checks in three days, not three months. We’re happy to explain to any funder how we’re able to do that. It’s not magic.
(Sorry entrepreneurs, but we only invest in 27 companies right now, with any new companies coming through Fledge, so apply over there).