Behind the Scenes of the POSRocket Acquisition Pt.1

It has been 9 months since the acquisition took place, which has given me enough time to reflect and look back at the whole journey.

I will share the story of the acquisition in full transparency with all my learnings hoping this could be related in any way to any of you so it could be of any benefit.

We were in a cash-burning business, which relies heavily on on-ground sales and support. This meant if we wanted to keep growing rapidly, we had to keep raising funds.

We were hit hard during the first few months of the pandemic, and we were raising our round of funding at the same time in February 2020. Plus, investors were hesitant about the future of the business because the hospitality industry was one of the industries that were hit hard by the pandemic.

Luckily, we were able to close the round of funding but we did take a 20% hit on the valuation. The investors also decided to put a list of conditions, and they also put KPIs for us to reach, and split the investment based on those KPIs achievement. It was as well requested to meet certain conditions related to consolidating the corporate structure of the business. I talked to a law firm and they informed us that it would take 2–3 months to finalize.

Guess how much it took to finalize? 13 months! We only got almost half of our investment for 7 months and we had months when we couldn’t pay our salaries and I had to look for personal loans to cover our salaries and expenses. We realized we are doing everything we can to finalize the structure issue but unfortunately these things take time; the company was growing slowly as we could not spend a lot on growth as we had to be careful with cash burn and it was hurting the business, and for that reason the remainder of the funding was unlocked.

We then realized that I had to start raising funds again. This is where I started having those conversations with the team and BOD, because even for raising funds you need a strategy.

We all agreed that raising another round of funding from the region would not be the easiest task, because late-stage investors were either already invested in Foodics or not even interested in the business model as I spoke to all of them. The direction was to speak to strategic investors and not typical VCs.

I created a list of strategic investors who could potentially lead a round of investment and I started reaching out to them. Foodics was even on the list, but I never approached them because I did not want to be in the weaker position. Luckily one of those strategic investors was interested and wanted to invest a significant amount. This was in April 2021, and since they were a strategic investor we decided that they will invest a smaller ticket. I agreed to honour them with the same terms we gave our previous investors in the last round (Sep 2020) due to taking into consideration the valuation was hit by the pandemic. (Very nice of me)

We actually worked on a round extension of an additional $700k, and they agreed first to invest $350k in April 2021. Plus, they wanted to have the option to invest an additional $350k or more at the same valuation in a year’s time.

Of course I would have been crazy if I agreed, it was a clear “No” and we agreed to only stick to the $350k in April 2021.

Let me explain why it was a clear “No”. If I agreed for them to invest any amount in a year’s time (meaning April 2022 at the same valuation), it means I would have anchored a very low valuation. Plus, my investors in the next funding round would have needed the same terms they got for sure, which means although the company had great growth in 18 months, I would have had to raise the same valuation. After I rejected their offer we agreed to give them ROFR option to invest in the future round to own up to 10% of the company, and they also requested to have a board seat.

This was a very difficult ask because I had investors with much higher stakes and they already have board seats, so we agreed to give them an observer seat on the board. Since they are a strategic investor you always have to be careful about their incentives and interests. Usually, if they are planning to acquire the company then it might be in their interest to keep the valuation down. Also, you have to be careful that they will have access to all information about the business, so to protect the company I asked this investor if they ever “plan” to invest in a competitor or build a similar product to ours, they have to let us know so we can for sure remove them from the board observer seat. That makes sense, right? This investor took it a negative way and felt as if they were not welcomed in the company, (which is definitely not the case) and decided to pull out from the deal although we have finalized all legal documents. By the way I still have the deepest respect to their CEO, but this is business and everyone one of us wants what’s best for their business.

I don’t know if it’s fortunate or unfortunate that they decided not to continue with the deal and pulled our last second, because during the same time I was talking to strategic Saudi investors and I managed to raise from them $350k as I was planning to expand to Saudi.

In June 2021, I received a call from Ahmad AlZaini ,the co-founder & CEO of Foodics, at 11pm. I was a bit confused on why my competitor is calling me on Tuesday at 11pm out of the blue :). To give a bit of context, I had sent Ahmad a message on LinkedIn a long time ago and told him to stay in touch since we are in the same field and we exchanged numbers and we met once in Saudi but never talked since then.

In the next episode I will share with you part 2 of the story, stay tuned!