Founders From Hell, Funders From Hades: Condescending Much!
This is “Founders From Hell, Funders From Hades” – a safe space where startup founders and funders bare it all like never before. Watch this space weekly for real accounts of funding gone wrong.
In this week’s edition, I got Jesse Ghansah, the Ghanaian tech entrepreneur behind not one but two YC-backed startups, to share some of his most bizarre encounters. Happy Reading!
“Sorry for asking, but do you understand that the money belongs to the company and is not your personal fund?”
Coming from a so-called investor to any startup founder for that matter, the above statement (masked as a question) clearly sounds terrible and stings just as bad. Condescending much!
And being that those words actually came from a prominent white investor in Silicon Valley and was directed at a team of Ghanaian co-founders who had just gotten their startup through the prestigious Y Combinator (YC) programme, it’s got to be doubly infuriating. Like, who does that?
Jesse Ghansah, who is one of a handful of founders to have gotten two different startups into YC on two different occasions, would prefer not to relive that scenario which he reckons is the most unpleasant fundraising-related experience he’s ever encountered.
Ghansah is now building a new company called Swipe, which earned a place in YC’s W20 (Winter 2020) based on its efforts at reimagining cash management and credit for Africa’s fast-growth companies. But back in 2016, he was with OMG Digital, and that was when that unsavoury encounter happened.
OMG Digital, a media company that set out to be “Africa’s BuzzFeed,” is the first Ghanian company to get into YC and among the first five African companies to be accepted into the programme.
Fresh from sharing the stage with the likes of Flutterwave, Instabug, and Paystack in San Francisco, Ghansah, and two other co-founders: Dominic Mensah and Prince Boakye Boampong, were exploring the possibility of raising funding.
Then, they found they had been talking to the most condescending of funders. One who basically thought it was okay to ask a group of entrepreneurs if they knew they were raising for their company and not for a new condo. Ghansah tells me this was the most unpleasant thing.
“There was an investor that we were talking to sometime around 2016 when we finished YC, and he was just basically asking us really condescending questions. He was asking us questions that are sort of offensive, like do we know that whatever funding we raise is not our personal money,” says Ghansah.
“Come on, of course we know! It wasn’t our first time raising money, we had gone through YC, we had done a whole bunch of things. There are so many other things he said that I don’t even want to remember, it was just ridiculous,” he tells me.
Other than that very unsettling incident, Ghansah says his experiences with investors have been mostly positive and he’s been lucky enough to have not run into any sort of contentious exchanges with funders since then.
But that’s not to say it’s been smooth-sailing entirely. There’s always the occasional brush with funders who come off as potentially problematic and Ghansah says he’s wary of the red flags. The Ghanaian tech entrepreneur can’t overlook the bad signs with investors that cannot be bothered to do their part of the work.
“Ahead of a meeting, I share my pitch deck or pitch material. Once the meeting starts and I see that the investor hasn’t done any prep at all, then I know it’s not a good start,” he explains.
“Typically, investors that are interested or serious about engaging with you will at least do some prep work, whether it’s to go through your deck or read about your industry or basically do a little bit of prep ahead of the meeting to make things more productive. I have found that to be one of the biggest red flags for me.”
Ghansah also points to experiences with investors trying to “low-ball on valuation,” especially when the valuation in question is fair and dovetails with what is common in the market, as turnoffs.
“Investors that are adamant on low-balling you are not thinking long-term. They are probably looking to sell pretty quickly anyway, like during a secondary sales event,” Ghansah tells me.
He mentions that anything else that comes off as very condescending is generally not a good sign. “Like the way they talk to you, the way they ask questions,” he points out.
“I’ve found that with very good investors, it’s more like a conversation. They are also trying to picture what success looks like for your company. If I notice that an investor is super skeptical or cynical and just keeps hammering on the ways that the business will not work, that’s also a red flag for me,” he adds.
Ghansah believes that investors should typically be optimists who, of course, ought to be realistic too. But he says he’s put off when all the contribution from an investor revolves around why a business won’t work.
The ‘Oliver Twist’ types
While Ghansah maintains that he hasn’t exactly had any major disagreements or fallouts which led to a collapse of funding talks with funders, he paints a picture of a few off-putting scenarios that have crippled further discussions.
As in, those sort of situations where someone is always asking for more, as is often said of that famous Oliver Twist character in Charles Dickens’ popular novel.
“The experience that I have had is investors that just keep asking for more and more, whether it’s data or industry information. We got in touch with investors whose requests are never-ending,” he recalls.
“They asked to speak to customers, they asked to speak to employees, it just kept going on and on. I just felt like they were essentially dragging me on and I just stopped engaging at that point.”
As Ghansah further explains, “After some engagements or calls or pitches that we’ve had and you still don’t get the picture or vision of what we are building here, I just stop engaging. That’s because, sometimes, it might end up being a big waste of time. I’ve realised that the more they make such continuous requests, they are mostly looking for more faults.”
Ghansah welcomes the idea of proper, thorough due diligence but he remains conscious of the fact that it gets to a point where one realises that the investor is just looking for more reasons to say no.
“If things drag on, whether it’s about valuations or cap negotiations, or just asking for more and more data, I stop engaging at that point,” he says.
African startup founder or funder who fancies a feature on this “not-boring” series? Please reach me via [email protected]