Venture funding is extreme sport!

FHFH Series: Ghost Founders, Botched Deals, And Third Wheels

By  |  November 26, 2020

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 in touch with Kola Aina, the seasoned tech investor leading one of Africa’s most active VC firms, Ventures Platform, which wrote one of the first cheques to the recently-acquired Paystack. Happy Reading!

The “many-years-in-one” year that is 2020, is inevitably winding down. And for the African tech scene, it cannot be disputed that one of the biggest highlights of the year only happened last month.

That would be the Paystack acquisition which saw Silicon Valley’s Stripe fork out a fee believed to be around USD 200 Mn for the Nigerian-based fintech startup it had previously backed in a USD 8 Mn Series A round.

Among the many other positives that accompanied this landmark deal, the Paystack acquisition did “make it rain” for the startup’s early investors. And Ventures Platform (VP), led by the Nigerian entrepreneur, technology operator, and investor, Kola Aina, is surely one of those to have hit paydirt. VP seed-funded Paystack, among many other startups.

Aina founded VP in 2016 and has led the firm since then, nurturing it into one of the most reputable and formidable homegrown venture capital (VC) firms with a certain knack and hack for early-stage African startups. In their book, angel, seed, and pre-seed are equally favoured, and up to 29 African startups have been funded.

Aina’s firm likes to view its investments in early-stage ventures as “commitments,” not “bets.” But for every commitment in a Paystack, a PiggyVest, or an MDaaS, there’s always that one startup that gets funded and simply just stops.

When founders just up and leave

In this “Founders From Hell, Funders From Hell (FHFH)” feature, Aina tells me that there has been a couple of unsavoury experiences with investment-seeking startup founders. But he likes to chalk it up as learning opportunities.

In his own words, “We count them all as part of our ”school fees” and lessons that have improved our selection criteria and diligence processes. You don’t really learn VC without doing it.”

And sometimes, “doing it” involves cutting a cheque to a startup run by a founder who just stops showing up, or one who goes off globetrotting and becomes unreachable. These things really do happen and Aina says he’s faced such scenarios on a couple of occasions.

“There was a startup which we invested in and the founder just went ghost after a few months and never sent reports,” he recalls. “In another case, the founder simply moved countries and was no longer reachable. We’ve had a few of these curveball-type situations.”

And that’s not all

I ask what seems to be becoming one of my favourite questions these days: What’s the biggest ever red flag that’s stopped you from investing in a particular startup even though you initially wanted to?

In response, Aina remembers this one incident where they had made good progress with a startup only to be blindsided in the last minute, such that they had to pull the plug. What actually happened? Well, let’s just say it’s not the best of signs when a founder suddenly refers a potential funder to a so-called consultant “talk-to-my-lawyer-style.”

“We came across a company that had a strong founding team, which is always important for us, and we liked the approach they were taking to solve a particular problem. We’d really dug deep into the nuances of their company and we were ready to present the deal to our Investment Committee,” Aina tells me.

But things took a rather awkward turn when a “third wheel” suddenly came into the picture. That brought asunder.

“Rather than dealing with us directly, the founder introduced us to a consultant to engage with for further questions and negotiate the final terms,” says Aina.

“This was a curveball as we weren’t expecting to deal with a third party and the stage at which we invest is so early that we like to deal directly with the founding team. We ended up walking away from the deal,” he adds.

Things do get tricky

Speaking of warning signs, it should probably also set off alarm bells when it appears that one is dealing with a founder who has his fingers in some many pies.

Aina recalls a situation in which they were drawn to a company with a brilliant founder, but whose obsession with juggling several projects, as opposed to concentrating on a key endeavour, was to ultimately prove the undoing.

“Once, we invested in a brilliant founder who had a lot of ideas. Everything started out well until the founder wanted to explore all of his other ideas and set up parallel businesses. In the early days of building a startup, a disciplined focus is key so we cautioned the founder about this,” says Aina.

“When it became clear that the founder didn’t share the same ethos, we naturally started having second thoughts. Fast forward to a few years later, the founder mentioned that he regretted not taking our advice but unfortunately, this was only after a number of his enterprises failed.”

No-brainers and non-starters

When I ask about what he considers the worst pitch he has sat through, Aina mentions the case of a startup that had basically built a “copied” solution before even looking at the problem.

“We once listened to a team that practically cloned an existing solution without a keen understanding of the market, potential customers, or the scale of the work to be done. They had practically built a solution and now were in search of the problem,” he explains.

“The startups we’re keen to invest in should be solving real issues on the continent whether that’s plugging infrastructural gaps, connecting underrepresented communities, or addressing inefficiencies. We want companies that are improving the livelihoods of Africans and hold the potential to establish mass job creation in the process,” shares Aina.

On the whole, the Nigerian tech investor states that while it’s hard to make a no-brainer call on an investment since multiple factors have to be considered for every deal, there’s a premium on repeat successful founders with a decent pedigree.

On the other hand, he maintains that, when it comes to startup funding, the biggest non-starter for the team at VP is founders with a bad attitude or obnoxious personalities. “People that are rude and act like jerks are rarely pleasant to work with” are Aina’s parting words in this interview.

African startup founder or funder who fancies a feature on this “not-boring” series? Please reach me via [email protected]

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