South American Adventures

Taking flying leaps into the unknown


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Spectatular failure from red-hot startup Fab that raised $330 million and then went bust

I read / skim roughly 10 startup related articles going back 2+ years now. After a while things do get repetitive however today I came across a article about Fab which I found particularly interesting for 3 reasons.

1 – The dollar figures involved in investments received, sales generated, units shipped and acquisitions made is quite astounding especially considering the short time frame.

2 – Incredibly few companies reach product market fit. “Fab had product market fit, but Fab didn’t understand its product market fit,” a former Fab employee said.

3 – It had a CEO with an interesting personality and background who wrote an impressive memo to his stakeholders about the mistakes made.

I won’t attempt to summarize or try to add interesting anecdotes to the article as its superbly written and very insightful. I recommend you take a look. There are a lot golden nuggets in their which many founders can learn something from.

http://www.businessinsider.com/how-billion-dollar-startup-fab-died-2015-2

In early 2011, Bradford Shellhammer and Jason Goldberg shut down Fabulis and started Fab.

In early 2011, Bradford Shellhammer and Jason Goldberg shut down Fabulis and started Fab.

Spectatular failure from red-hot startup Fab that raised $330 million and then went bust


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Brazil’s Big Opportunity Attracts Tech Dreamers

“Brazilians are very welcoming to foreigners, it’s a rich cultural country and it’s easy to feel at home here. In meetings, people are very open…..” see more:

http://www.idgconnect.com/abstract/8654/brazil-big-opportunity-attracts-tech-dreamers

 

brazil-fundacity0639-620x354


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Negotiating in bustling Mexico City

I’ve been in Mexico City for no more than 48 hours and we already received 2 offers from investors. Firstly, I consider these offers and in fact offers of any kind as complements. They signal that we are doing and have created something of value that others would like to participate in. However, as with any offer they are not necessarily reasonable and should thus be considered simply complements and treated accordingly. Something to thank and move on from.

One of the two offers flew in via an email within 24 hours of our first meeting. It was an offer to form a Joint Partnership to bring Fundacity to Mexico. Interestingly it came from a very prominent investor in the market. Someone that could certainly offer smart money. The offer however asked for 50% of Fundacity Mexico in return for time and contacts.

I’ve come across several such offers from investors during my visits to Singapore, Mexico, Argentina and USA. Thus I am getting better accustomed to responding to them and most importantly I am learning to better assess my value and that of my team and our product. I’ve come to realize that I am very good at entering new markets. I landed in LatAm little less than 2 years ago without a product idea, with no contacts and without speaking the languages. Not only do I now speak some Portuguese and Spanish and have contacts in the VC industry across LatAm but have a great team around me and a product that is gaining great traction. A lot is possible if we try hard enough.

Some thoughts on such offers

  • Firstly, I, and I assume most startups, require a cash component for equity as we require capital to drive the growth of our startup. I am not a fan of splitting ‘smart money’ into ‘smart’ and ‘money’. Naturally, an investor is expected to make intros, bring new contacts and brainstorm on strategies with you…after all he has capital in the game. In fact, if the investor is unable to bring more than just money to the table you should probably not make a deal unless it is an FFF round.
  • Significant equity percentages, 10% or more, can be acceptable but only if that person will truly become an integral part of the team perhaps even the CEO. 10% is very significant and should be given to make key hires that take c-level roles and is not a sensible equity offer for advisory roles. For that we should consider around 1%, vested with clear KPIs. See the Founder Advisory Standard Agreement from the cool guys at Founders Institute.
  • I am not a fan of bringing in new money or advisors at a subsidiary level. It can cause perverse interests and a lot of complications if the company is later acquired as the conversion from sub to holdco may not be clear or in some cases the subsidiary may not actually be acquired by the holdco which will cause a lot of tensions. In the case of Fundacity, I believe it should be looked at as a whole and all partners should enter the holdco level to help align interests to building something bigger than a local platform which in our opinion would lack critical mass.
  • 50:50 means no one is in control. 50:50 JVs are hard. When times get tough neither the investor/partner, with several projects going on simultaneously, nor us, who would have a relatively small participation compared to other regions we are in, will be incentivized to drive things forward.
  • When the terms are very far from what you would like them to be I think it is best to decline and refrain from making a counter as it is unlikely you can give a reasonable counter offer from the other parties point of view. I believe it is best to decline and give a transparent and simple explanation as to why the deal doesn’t work for you. This is will help save both of you weeks of unnecessary negotiation. By being honest and friendly you can be in a good position to circle back in the future when the stars are better aligned or perhaps to collaborate on another project.
  • Partnerships and JVs can be very valuable especially when entering new markets, but a lot of care needs to go into structuring them…..which is tough. The terms should reflect current needs of the company and also thoroughly consider alignment of interests and impacts of certain what-if scenarios.

In conclusion, the process was very positive and friendly for us. Mexico is full of very talented startups and investors. I think a lot can be done here and I hope to collaborate closely with the players here. If a partnership is the way forward for us then we are yet to find our sole mates.


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Parachuting into Mexico

Friday night in my hotel in Mexico City trying to catch up on my emails and reducing the unread count below 300. It’s midnight and 299 hit. Score! The number of emails hitting me has reached 100/day and it is getting incredibly challenging to stay on top of them whilst moving Fundacity forward on the various fronts.

I came to Mexico making use of the fact that I was ‘nearby’ in San Salvador for a Entrepreneurship Conference I was invited to. My dad was coincidently on a mission for the UNIDO in Mexico City and we decided to meet and do a 2-3 day vacation in Tolum, Mexico. It turns out we haven’t seen each other in 10 months! I could have sworn it was only a couple of months. Interestingly, it is my first real vacation since we started Fundacity a year and half ago. It is shocking how time flies when you are completely absorbed in building a company.

My trip to Mexico was completely boostrapped entrepreneur style. With an 800 dollar monthly CEO salary there is no other way. The trip to El Salvador was sponsored by the great guys organizing the conference. I am very grateful to them and I look forward to delivering a impactful presentation to the congress there titled “Jumping off the cliff!”, with which I hope to inspire more young minds to consider building a business. My dad sponsored the flight between San Salvador and Mexico City and the flight to Cancun. I promised my dad a Jaguar when I make my first exit so I guess I better deliver!🙂

My dad left back to Europe after an awesome few days in Tolum and a day in Mexico with me. I decided to stay an additional week in Mexico City to get to know the local startup ecosystem. My 48 hours till now were very successful with meetings starting from the moment I left my dad at the airport. I met with founders of various VC firms, accelerators and officials from the Imadem, the government arm responsible for promoting innovation and entrepreneurship in Mexico with grants etc. 

My view is that there is a lot going on in Mexico even after you discount for the frequent over sales some of the local players deliver. If you haven’t checked out Mexico for business or vacation you should definitely give it a closer look.  

 

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Rocking it in Cozumel with dad!

 


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The day before Demo Brasil

I am always surprised when I see founders of other startups casually attend a startup conference. For me it is like attending an expo / trade show or other business event without preparing. I find it a complete loss of opportunity. One needs to start networking long before arriving.

Demo Brasil is a 2 day startup conference. Big fish from the startup ecosystem including angel investors, accelerators, VCs, entrepreneurs and policy makers will be there. This a fantastic opportunity to make great new contacts and expand ones network. There will be 100’s if not 1000’s of people there and arriving without a clear list of targets one is lost in the networking bonanza.

My approach to make the most out of a gathering of great people in my industry

Firstly I review the agenda and look up each speaker on LinkedIn. If I already know them I send a short message to say I will be there and I look forward to seeing them. If I have something specific I want to discuss I propose a meeting place / time. Of course a specific meeting is tough to agree so I try and find out when they will be at the event and where they may be to try and ‘bump into them’. For new contacts I initiate a LinkedIn contact request with a personalized message. I also update my CRM. I currently use Nimble.

I reach out to people I would be interested in meeting at the event and I suspect they may attend.

I attend the event with 100 business cards. 80 in my bag and 20 ready in my back pocket ready to be smoothly removed and handed to the prospect. I use Moo to make awesome business cards. This is not an item where I try and save pennies. Somewhat controversially, we designed cards that have our profile pictures on them. Quite prominently actually. As I tell each person I hand one to: “Love it or hate, you won’t forget me or who this card belongs to”.

Tonight we get on a bus at midnight and will be arriving in Rio at 630am….night buses mean we don’t loose a valuable day of work and of course don’t need to spend money on a hostel🙂. The glamorous life of an entrepreneur.


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And then I got a visa for life in Brazil…

It is incredible that my last post was 2 months ago. The last 2-3 month were incredibly busy and focused time. As I mentioned in my post Coming to Brazil: 3 weeks from idea to completion we decided to relocate to Brazil. This decision was a response to the very tough time we were going through in Jan/Feb. We had trouble with former employees and an investor walking away last minute from an investment round we were closing. Team moral took a big hit. For the first time since founding Fundacity my vision of the company was destabilized albeit for a brief moment. The move to Brazil was meant to boost team moral and help catapult Fundacity onto the world stage away from off-the radar and somewhat uneventful Chile.

Since that decision things have raced into motion. In fact, 3 weeks after our decision, when I was battling on thinking of a way to finance the move, I received a ton of notifications on Facebook. ‘Congratulations”. Logging into Facebook I realized Fundacity was selected for the SEED Minas program in Brazil. I barely remembered applying. I learned about the application round 5 hours before deadline. It was 7pm. Most of the guys were leaving home. I got a coffee and sat down to fill out the 50+ question form. Diego began editing and cutting videos that were also required . It was the most rushed application I have ever undertaken. In fact i submitted the application 3 minutes past midnight. Thankfully it still went through. Lesson: always go for it even if it seems impossible.

1435 startups applied from 34 countries.  We were one of the selected 40. The offer: USD33,000 and 2 year visas for the program participants in return for NO equity or need to repay. That is right, free money to come and launch our company in Brazil and full-time staff to help guide us in the new market. BOOM. The lucky break we absolutely needed. Our move to Brazil was financially and administratively secured (I was originally planning on moving to Brazil on a student visa).

We relocated to Brazil, launched Fundacity Portfolio Manager, closed a round with Primary Ventures and NXTPlabs Venture Fund and this week the government of Mina Gerais announced that they granted visas for life for all SEED participants! Damn I love Brazil.

 


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Syndicated deals produce larger investment rounds

The 2013 year-end Halo report is out. Two interesting takeaways for me were that:

1. Syndicates deals produce larger investment rounds. “Overall median deal size in 2013 was $600k, but when angels co-invested alongside other types of firms (including VCs, etc.) that median shot up to $1.7M.”, (CBinsights commentary).

2. 73% of angel group deals are c0-invested

The reason these excited me is because I believe Angel investment syndications has the key to unlocking liquidity in emerging seed funding market, especially Latin America.

 

You can download the full report here.

Halo-Report-2013_Update

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