Structurally that is almost guaranteed to be a bad deal. I doubt you'd ever find a deal of this form in the history of a startup that went on to be successful. If an investor buys as much as half the company (it does happen in some series A rounds), the valuation should be higher.
Investors might pay $200k for half a restaurant or some other business like that, but not a startup.
Yes I think the professor realised this -- he was one of the founders of lavalife IIRC.
I have seen the show and my observation was: The dragons are really mostly into funding sauce-makers, innovative clothing accessories, etc. and they apply the same principles to startups -- doesn't work well.
I've always felt that they behave like VCs i.e. want a lot of control (hence the 50%) but only want to invest money like an angel. The weird thing is that given the amount of money they invest and the number of deals they do, they possibly can't have the time to run any of those early stage companies.
I've never seen a startup accept funding from them, its either an inventor who gets access to a particular store or a mom & pop shop.
You have no idea? Hmm.... you need to think it through. Just think about how much exactly $200K would last them and how much more money they'd need to raise to become profitable. Not to mention the control problems.
As funny as that whole thing was, the prof was right to break that deal. This company wouldn't have gone anywhere anyway with that kind of a structure.
That's right. I have no idea. You know why I have no idea? Because nobody is offering me $200k, that's why I have no idea. If they were, I'd immediately learn enough to make a relatively informed decision. But until then, I'd rather learn things that would help me build a product, not manage a company. So therefore, I have no idea. Gosh, what a horrible thing to admit.
I agree. What is more, the professor's show in the board room was so good that it made for highly entertaining TV. If you're going to turn down a $200k, you might as well get some free publicity out of it.
It utterly depends on what stage the company is in. If it's a few guys and a prototype, $200k of seed money for 50% isn't necessarily a lousy deal.
And, for the record, it could last quite a while. 3-5 young guys making rice-and-beans money, cheap rent, 2-3 servers at ServerBeach...
The "professor" was insulting and controlling-- he raised the VCs' hackles, which isn't going to move the meeting in the right direction. If he had a problem with the valuation, he should have raised the concern before they'd issued the check. That's bad faith negotiating.
The biggest problem is that this professor apparently didn't discuss how he thought the 200k was a bad deal beforehand with the founders. Or, if he had discussed it beforehand, the founders had decided it was still a deal they would like to proceed with.
Instead, he went ahead and torpedoed the deal without the founders consent. It certainly makes for good television, but I'd be pissed if I were one of the founders.
Yeah, the source of the problem was that the founders and the professor were out of sync. If they agreed with him, they shouldn't have been in that meeting in the first place. If they disagreed with him, they should have stood up in the middle of his rant and told him to stop talking and leave the room.
As it happened, I guess it was uncomfortable for them to discuss, so this scene, which is just about the worst-case scenario, came to pass.
'professor' comes across as a total dick to me.
If he thought the valuation was too low, why didn't he say that instead of insulting people and pissing them off.
Fascinating little encounter. It continues to seem to me that ego, and all the slings and arrows that're attached, is the number one crusher of creativity.
