Situation :

Fabriq, in the process of raising its next round, was bent on not taking money from “regular VCs”. After hearing horror stories from some of their friends and the other board member, they were ready to accept a valorization as low as 40M for a 10M revenue startup.

They chose, and we could not do anything about it, to launch a round with only three funds and have a “sweet process”, in which they got a 90Me valorization offer. We had another fund, that they declined to meet, that was offering 100M pre-money valorization. We think a competitive process would have yielded at least a 120Me valuation.

Impact :

5Me “paper money” valuation differential

probably .5% additional dilution

What do we learn :

1. Our standard pact should include a clause that forces us to choose the process alongside the founders and not be “dragged out” ;
2. We should prepare the fundraising processes before and have high level acknowledgement on process (including competitive) with founders ;
3. Our intimacy with founders was not great enough to totally change the tide, even if we got sufficiently close to the founders for them to accept to open the fundraising universe - we should strive on having enough intimacy with founders.

Larger learning :

Founder intimacy goes both way and should be nurtured thinking of a “jauge” with the relationship with the founder. FIlling up the jauge, which is OSS strong suit leveraging operational help and excellence, should be completed with “people time” to even fill the jauge more. Then, the jauge could and should be leveraged in tougher moments to align OSS interests and leverage goodwill thus created.

The main mistake w. Fabriq was no active management of this jauge, ending in subpar results.

Alternatives we won’t pursue :