Dror Tamir – Don’t Put All Your Eggs in One Basket When Raising Capital
BIO: Dror Tamir is a serial food and nutrition entrepreneur with a passion is to improve the health of children and families through better nutrition. He is the CEO & co-founder of a startup, Hargol FoodTech, the world’s first commercial grasshopper protein producer.
STORY: Dror was looking for investors when one particular one showed interest in being the lead investor. He was super excited about this opportunity so much that he put his entire focus on this investor. After eight months of due diligence, the investor refused to follow through with their promise leaving Dror with zero investment.
LEARNING: Do not chase just one investor when raising capital; keep your options open. Time is money, especially for a startup with limited resources so use it wisely.
“As an entrepreneur, you have to be the most optimistic person on the planet and believe that your startup is going to succeed.”
Worst investment ever
Raising capital for his startup
Dror is always looking for suitable investors, and in one of his previous rounds of raising capital, his company received a lot of interest from investors. One particular investor approached him and said they wanted to be the lead investor. From day one, they said they would invest 70% of the funds that Dror needed.
Opening up his company to strangers
Dror was excited about this opportunity. These were the guys that he wanted to work with. Dror discussed the valuation, terms, and plan with them, and then they went into due diligence, the longest due diligence he ever had. They did eight months of due diligence.
Part of the due diligence meant that Dror had to answer hundreds of questions of every aspect of the company. Another part of that due diligence included discussions with experts that the investors hired and got into the company’s heart. This made Dror feel very uncomfortable because it meant he had to share delicate company information with persons that had no relation with his project and who could even become competitors. But Dror needed the money, and so he had to comply with the due diligence process.
Show me the money
After eight long months, it was time for the investor to show Dror the money. The investor said they would invest the funds that they promised but only a third of the valuation they discussed. This was unacceptable for Dror.
It became apparent that the investor had prolonged the due diligence process to put pressure on Dror. Things got even worse because while the due diligence took place, Dror had received interest from other investors.
But because this particular investor was supposed to be the lead investor, Dror never negotiated terms with other investors. He just told them he had a lead investor, and any other investor would enjoy the same terms as the lead investor. They signed the investment documents and waited for Dror to finish the due diligence.
Losing it all
After the lead investor went back on their word, Dror went to the other investors and asked them to move forward with what they had agreed on. The result was horrific. The investors pulled their agreements and decided not to invest. Dror was left with nothing.
What irked Dror most was the eight months his company lost during the due diligence process that yielded nothing in the end.
Have a devil’s advocate to help you deal with investors
Do not engage investors all on your own. Bring in another person from your team who will be your devil’s advocate. A person that will tell you when you are just wasting your time. Someone who will not be afraid to ask the hard question that you personally cannot ask.
Do not chase investors too much; otherwise, you will chase them away
Do not apply too much pressure when chasing investors. If they feel too pressured, they will not invest or offer you a deal that you will not accept. So think about how much pressure you want to apply, and take your time. If they do not come back to you, they probably do not want to invest.
Time is indeed money for startups
When it comes to a startup that has very limited resources, time is money. If you get caught up in something that takes you away from the business, it is like spending money. Wasted time becomes wasted money.
Take care of your emotional runway
There is an emotional runway that is the confidence that people working for you have in you to make the idea work, get the funding, bring it all together, and get the results. As a leader, you need to know when you are spending too much energy on other things instead of focusing on the business.
Be more open, listen more, understand what the messages are, and if necessary, move on to the next potential investor. This will save you a lot of money, much more than you can get from a non-committal investor.
No. 1 goal for the next 12 months
Dror’s number one goal for the next 12 months is to sign a significant joint venture with one of the leading food producers worldwide and bring his products to one of the largest markets.
“Do not wait for the perfect moment. Just go out and do what you want to do.”