Publications

15 ways to blow a deal: Those in search of capital say and do the darndest things
- November 1, 2022: Vol. 9, Number 10

15 ways to blow a deal: Those in search of capital say and do the darndest things

by Richard Wilson

Over the years, since starting our investor club in 2007, we have closed a lot of deals, but we have also seen many deals go sideways and get derailed. Here are examples of how not to get deals funded:

  • Claiming, after an injection of capital, that a business that has done $1 million to $2 million of revenue per year for years running is going to jump to revenue of $15 million, $25 million or $50 million in the next one or two years.
  • Asking for $12 million with no pitch deck, no one-pager, no investment memo and no video summary. They only had a 140-page subscription document. I said, “I can’t review 120 pages to get what you are doing, so if you want to write it via email, great. Or, if you have a one pager, I would be happy to review it.” We never heard back.
  • Telling a potential investor that you cannot possibly explain the investment in writing over email, they just had to pitch it verbally over the phone for it to make sense. For me, that’s an instant pass. If you can’t summarize your idea in a compelling way in one or two sentences, you do not have something I should spend time on, and I know many savvy investors think the same way.
  • Telling everyone that the deal you have is the best deal you have ever seen. I’ve heard this too many times to count.
  • Giving bad advice while negotiating. The CEO of one business said I should not be honest with our team on an issue we were discussing — to flat-out lie to them. Due to this and his lack of willingness to show financials, we will not do business with them going forward.
  • Guaranteeing anything, or saying the word “guarantee,” or promising 2x returns in a matter of months, or 5x or 10x returns in one or two years. Yes, I know VC investments exist, and I know in some niches great returns are possible, but when you overpromise to investors you leave no room for mistakes, learning curves or drastic market adjustments. It shows investors you care more about hard closing them rather than being a good steward of their wealth.
  • After negotiating many of the terms, a $70 million AUM group turned their back on a publicly traded entity with a $2.5 billion balance sheet. Their offer of providing them with $250 million of equity to buy $1 billion of assets wasn’t on the same terms as the $250,000 and $500,000 check they had been raising capital at. When asked if they had seen any other institutional term sheets to even compare the offer to, their answer was “no.”
  • A fully funded $5 million real estate joint venture deal got canceled while creating the LLC operating entities and papering the JV. This was due to one inaccurate off-handed comment the CFO made about how the partner was not important to them long term.  Immediately, the deal was killed.
  • One person looking for capital started smoking during a call. Another, in recent memory, was chewing loudly into the microphone while asking about deal terms, and another talking to our team member decided it was a good time to vape. I understand smoking cigars is a thing many enjoy, and everyone has their own vices, but during a pitch, negotiation, due diligence, or when asking for capital is not the time to knock back a shot or light up.
  • One group claimed to have a $10 billion valuation, but could not explain how their tech worked or how they were worth $10 billion besides convincing the last round of investors that they were.
  • One JV partner, who was being offered $100 million from a billionaire client of mine, would not move forward with the deal because they were worried about sharing the economics of a pie 10 times larger than they currently had. They overlooked the fact that 50 percent of a 10-times larger pie means you have more to eat, but also that they would have been taken to the major leagues, and they could have continued to grow their core business and related businesses around it.
  • One startup with $400,000 in revenue told me that a blue chip publicly traded company in their niche was publicly traded at 40 times revenue as their valuation, so they in turn were worth $16 million. First, they are not publicly traded; second, they are unknown; and third, they are not profitable or the holder of any valuable intellectual property or market share, etc.
  • Pitching a deal that looks no different than thousands of other deals.
  • One company with no revenue told me they were worth $12 million because they were going to do great revenue in three years. I pointed out a competitor who has great revenue right now, $2 million in EBITDA, and could be purchased for $10 million. Sometimes these types of deals still get done, but not with savvy, sophisticated investors, unless there is something real behind that valuation.
  • Countless times deals fall through because of bad communication practices, mainly lack of response to emails. One recent deal for over $200 million with an investment fund was canceled because every email took three to eight weeks to get a response. When they asked for feedback on why the deal didn’t work out, we had to politely tell them, “Because the other side lost faith that you had any interest in working with them.”

Many of the best deals we have ever gotten done were ones that started off with a “no” or someone ignoring us or telling us to literally go away and stop trying to complete the deal. None of the above “strategies” ever made the grade.

 

Richard Wilson is founder and CEO of Family Office Club.

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