Founders From Hell, Funders From Hades: Being Funded In Kind & Getting Ghosted

The year was 2017 and Helium Health, the Nigerian health-tech startup that Tito Ovia, Adegoke Olubusi, and Dimeji Sofowora had kickstarted a year prior, was in the middle of talks to raise a seed round.

When you are looking to build a company that is seeking to accelerate Africa’s transition to a technology and data-driven healthcare system, it’s always a plus to have access to people with the net-worth and the network.

However, even making the right connections does not guarantee anything. There’s always that small chance that things might take a crazy turn; like when an investor meets a small part of a funding commitment and then goes dark on everyone because, apparently,  the team didn’t send gifts to said investor to show gratitude.

As Ovia, Co-Founder/Head of Growth at Helium Health, tells me in between sighs in this interview, there has been quite a number of strange encounters in the startup’s fundraising journey. And she remembers the odd case of being “ghosted” by a local investor during Helium Health’s seed raise as the most bizarre incident.

In May this year, in the middle of a global pandemic, Helium Health closed a USD 10 Mn series A round to bolster efforts aimed at providing a backbone for medical-tech solutions in Africa. But it was the effort behind the USD 2 Mn seed raise of 2017 that brought all the drama.

One very strange situation

Raising funding for startups can be a bit like making a movie, it’s pretty much certain that some bloopers would come up behind every scene.

But just as it’s quite rare to find a movie director yelling “cut” on a flawlessly executed scene because the actors didn’t show enough deference to the moviemaker, it’s a strange discovery to learn that startup funding plans can go south because an investor didn’t feel “appreciated” enough.

As Ovia says, she had connected the startup with a certain high net-worth individual (HNI) and things had progressed quite smoothly initially. But that was until a small part of the agreed funding sum was remitted.

Shortly after that, the said HNI maintained radio-silence for reasons that were then unclear. When it was time to meet up with the rest of the funding commitment, all efforts to reach this individual proved abortive.

At some point, Ovia and the rest of the founding team had to return the small amount that had earlier come in, and only then did it become clear what the issue was, though it turned out to be something rather petty.

“I had introduced the investor, we were really excited, but it didn’t go as planned,” she recalls. “We sent emails, calls, messages, and all that was left was to send courier pigeons or owls,” Ovia jokingly remarks.

“There was absolutely no response. It was when we sent the money back that the individual replied to us: ‘oh, thank you, I’ve received the funds’, it was the most bizarre thing ever,” she says.

It was later discovered that the team may have gotten on the wrong side of said local investor because they “didn’t come bearing gifts” after receiving a small part of the sum.

“I later found out that the issue was we didn’t say ‘thank you’ after receiving the funds. That’s why they refused to respond to us. I think we were supposed to have sent a hamper or something, apparently so,” says Ovia.

“We had sent an email saying ‘thank you so much, we have received the funds’ but apparently, it was not done in the Nigerian way and we were doing things the oyibo way.”

Ovia went on to liken the issue to a case of running into an older person and say “hi” as opposed to saying “good afternoon.” “And we don’t say hi in our culture. You know, we’re Nigerians, it’s our culture, that’s not how we greet our elders,” she remarks, albeit with a hint of sarcasm.

Got to read the handwriting on the wall

As I gathered from the Helium Health co-founder, in the early days, it was imperative that they made some good connections, and local HNIs with connections in the healthcare market was a no-brainer.

In this reported case, they were even more interested in the network of the individual than the funding, even though said individual voluntarily offered two-times the amount they had actually requested, and then ultimately ghosted.

“We asked for a lower amount because what was more important to us was the network of that individual. The individual actually came back and increased the amount, like double the amount that we asked for,” Ovia tells me.

“It was interesting because I guess some arguments can be made that maybe they didn’t have the money. Yes, maybe it was a situation like that, but I don’t think that was the case because we set a lower amount and they came in and doubled the amount,” she adds.

Part of the amount was remitted and the other part was to come in before the round was closed, and the investor attested to this in the early documentation.

The team had allowed such leniency in the agreement because they were keen on having the local investor on board in the early days of launching Helium Health, which claims to have become the leading healthcare technology provider in West Africa with a suite of products that serve 300+ facilities, 5000+ medical professionals, and 165,000+ patients as of March 2020.

“The ghosting came when we were following up and there was no feedback from that investor whatsoever. Even we sent documentation for the revised amount and everything, nothing was then signed or anything like that. All our calls fell on deaf ears, we couldn’t communicate,” Ovia explains.

Got to recognise warning signs too

Interestingly, the initial agreement was structured such that if the investor does not meet up with the balance of the agreed amount within a specific timeframe, the documentation becomes invalid. In Ovia’s words, “it’s almost as if you sent the person free money.”

In plain terms, the agreement in question was such that the failure of the investor to remit the rest of the agreed funding amount meant that the small amount earlier disbursed was basically gone. That is, the startup is free to move on with the funds and not be held accountable.

It’s like making a documented commitment of, say, USD 1 Mn in a startup and then providing USD 500 K up front, under an agreement with a clause that dictates that the other USD 500 K be remitted in a month or the initial USD 500 K forked out is gone — the initial sum becomes a giveaway, so to speak.

However, Ovia and the rest of the founding team elected to return the received sum, cancel everything, and sever ties with the individual. And that’s because they had thought about future funding rounds. If they kept the money, the big red flags that were already flapping at full mast with this investor could prove problematic in the future.

“What we then thought about is what happens in future rounds. Investors have to sign documentation if you raise your A, your B, your C, and so on. Imagine dealing with someone who is so difficult to reach at such an early stage in the company, what then happens when you are trying to close your Series B round?”

She adds, “As in, everyone is trying to reach them and hitting a brick wall. It’s scary, you never want to have that. We decided we didn’t want to deal with that.”

Ovia, however, insists that this unsavoury occurrence is no bash on local investors, though it may be indicative of the maturity of the local landscape when it comes to tech investments, which is especially evident when seeking out HNIs.

It’s no secret that Africa’s wealthiest people are not keen on tech anyway, nor is it unknown that the bulk of the funding that fuels the continent’s tech ecosystem is sourced from foreign institutions and individuals.

“A lot of HNIs in the US and Europe, for example, have wealth managers or family offices that basically handle these kinds of things and advise them on how things ought to be done and structured,” she says.

“But because tech is not really that popular around here yet, a typical HNI is unfamiliar and uncomfortable with the risk of investing in tech and would rather buy properties, buy lands, and stuff like that. That lack of maturity in the market means there is a poor understanding of the proper way to do things, and that causes a lot of problems,” Ovia reiterates.

She also reckons that a lot of local startups would actually like to look towards local investors as they are the people who would help such companies connect with the local market and grow, especially at the early stages when a startup is trying to get some kind of grip on the local scene. But she believes this is hampered by the lack of maturity in the tech sector at present.

“They [some potential local investors] lack the understanding required,” she says. “But this just means that the sector hasn’t quite gotten there yet. Even when they step out of line, there aren’t enough people to call them out and set things right.”

This, perhaps, is why Ovia and perhaps many other local entrepreneurs still encounter scenarios like the one she shared next in the interview.

The curious case of  cash and kind

You can’t make this stuff up; A startup can make good progress in funding talks with a band of wealthy individuals only to discover last minute that only half the agreed funding amount will be remitted as cash and the other half will come in kind, whatever that means.

It’s not the stuff of fiction, Ovia tells me the team suffered that weird encounter not that long ago. It happened that they had been approached by another HNI who had teamed up with some equally wealthy individuals. They were all under an investment arm, and they appeared to be quite interested in backing Helium Health. But appearances can be misleading.

“We were actually quite excited, the investment arm had actually approached us. We had sent all the documentation, the information with our valuation, and all that,” she recalls. We even got an investment offer letter, everything was quite formal.”

It wasn’t a good sign when the investors slashed the startup’s valuation by half. And even though the Helium Health team opted not to consider that a deal-breaker just yet, the startup was completely stunned by what was to come next.

“What turned us off as a company was that the amount they wanted to invest, they wanted to give half of it in cash and the other half in kind. We didn’t know what it meant either, but there it was on the offer letter,” Ovia says.

When I ask about what she thought they meant by “the other half in kind,” she says it literally means what it means — “in kind.” She goes on to tether the situation to the hypothetical case of donating USD 10 Mn worth of face masks to aid the fight against COVID and declaring that USD 10 Mn has been donated.

As she further explains, “An individual would say, I bought these face masks for a hundred dollars apiece and I’m giving you a hundred of them. I’ve then donated ten thousand dollars to you. And again, it’s subjective because who are you to say I didn’t get those masks for a hundred dollars each.”

Again, she maintains that these kinds of encounters are more of a reflection of the current state of the local tech landscape/market than an indication of shortcomings on the part of local investors.