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 and fundraising gone south.
In this week’s edition, I got in touch with Matthieu Marchand, a Senior Associate for the Partech Africa fund, who is familiar with the ins and outs of startup investments and has seen some unsavoury moments.
Enjoy the read!
When Matthieu Marchand first joined Partech in September 2015, he served as a Venture Capital (VC) Associate at the renowned global investment platform for tech and digital companies.
After helping to manage the disbursement of EUR 400 Mn (USD 489 Mn) equity fund investing ticket sizes of between EUR 10 Mn (USD 12 Mn) and EUR 45 Mn (USD 55 Mn) in Europe and the U.S., he became an Investment Officer for the Partech Africa Fund.
Since September 2017, he has enabled the disbursement of the USD 145 Mn Partech Fund dedicated to Africa which has invested in some of the continent’s most promising growth-stage startups including the likes of Yoco, TradeDepot, and Kudi.
But like most things, startup investing is no straightforward affair; it’s not without problems of its own. And in this discussion which forms the basis of this edition of the Founders From Hell, Funders From Hades (FHFH) series, Marchand bares it all on some particularly disturbing episodes that many ought to be wary of.
Giant red flags
When I ask Marchand about instances when it looked like a deal was set to happen but things had to be called off because of misgivings about the leadership of a company, he doesn’t miss a beat when he mentions one awkward encounter with a Kenyan fintech startup from 2-3 years ago.
The summary of the whole thing is that Marchand found out last minute that he was locked in funding talks with a founder who, on the backs of the fundraise, had taken the liberty to cop a “crazy” pay raise and conveniently left it out in all the discussions.
“The founder had given himself a raise without giving any information to us the would-be new investors, and he did that during the fundraising,” he tells me.
“So, basically, you are looking at a company, cross-checking things, and what you see as the salary of the founder, (because, of course, as investors, you are checking how much the founders are paying themselves), it looks like the founder is taking much more.”
And by “much more,” Marchand refers to a huge 100 percent raise that meant the founder was angling for a takehome that was not too far away from USD 50 K a month. What’s more? The said founder never ran it by the investors and was going to just sort of “sneak it in.” Marchand says this was a bad sign.
“Should the founder had told us before, we would have discussed it. But to discover it last minute just before signing was really a red flag. It brought a lack of trust. It’s not illegal to get a raise, it’s just that the founder accidentally forgot to tell us,” Marchand says with a hint of sarcasm.
It didn’t end there, though. Marchand recalls that the matter was actually discussed with a view to giving the founder a raise that most people would consider fair under the circumstances. But the said founder wouldn’t budge on his number, plus it didn’t help that the founder took up a brash approach.
“When we were discussing the salary raise, the founder responded very brutally, saying he does whatever he wants, that it’s his company, that no one but him has a say in the matter, and that we should go f*** ourselves,” Marchand tells me matter-of-factly.
According to him, this was the last straw. At that point, the salary raise was not even the issue anymore. The grouse was in the attitude of the founder.
As Marchand says, “that’s not the kind of tone you want to get from someone you’re looking to build a partnership with. It strengthened our opinion that we should not invest in that company.”
Obviously, the attitude of the founder put further strain on things and the deal collapsed ultimately.
Marchand tells me that Partech typically communicates with around 1,000 people every year who are looking to raise funds. And that often means listening to pitches of the best and worst kinds.
To him, the biggest no-no when it comes to pitching is overselling or, in more frank terms, bullshitting. He notes that while it’s good practice to talk up a business’ opportunity, it’s a bad idea to willfully overstate potential impact. And he’s come away from a few pitches like that with one thing in mind: No way.
Worst-ever startup funding-related experience he’s ever had? Marchand reckons it’s the “far-too-long” period during which he sort of brokered a deal between a large corporate and a seed-stage startup. According to him, it was a lot of headaches and it took like forever.
“The company was still very young and quite promising and we were putting them in front of a large corporate with many years of doing big deals,” he says.
“It was an amazing company, the business was great, but things were a bit disorganised because this is a seed-stage startup with a young founder. So you’re putting people that are used to dealing with very switched-up processes in front of people whose processes perhaps are not as efficient.”
The corporate requested a lot of things and some of those things were unnecessary and borderline ridiculous. The startup didn’t have the level of data and documentation that they were being asked for, explains Marchand. And he had to get both startup and corporate on common ground. This proved a long, arduous task.
At the end of the day, there was a lot of hand-holding involved. A deal that should have taken 2-3 months to close took nearly a year. But as Marchand says, “luckily, the startup didn’t need the money to survive.” Otherwise, it may have been a different story with a sour ending.
In terms of what stands out for him when making startup investment decisions, Marchand emphasizes the skill and personality of the founder(s), and the nature of the dynamic between founder and funder as one of the key factors.
African startup founder or funder who fancies a feature on this “not-boring” series? Please reach me via [email protected]