Chris Sacca , Vulture Capitalist
Dear Chris Sacca: I watched Shark Tank Friday night with particular interest, because I am a personal investor in Nomiku and a fanboy of Lisa Fetterman, the cofounder and CEO.
It was with some consternation that I heard you say on national television, “Those investors are all grown ups who got into a risky company earlier on.”
You said this in the context of making an offer to invest $250,00o into Nomiku at $2.5M post-money valuation, conditioned on re-arranging the terms of the prior investors after hearing that there are $2M of notes outstanding at a $10M valuation cap. Your concern was that if the other $2M converted into the next financing at the valuation that you proposed, the founders would end up being grievously diluted, down to less than 10% ownership of the whole company.
This is a valid concern, one that I share. Founders who create and expand and grow a company should earn more than any single investor from the value they create. But the only reason this is a concern is because you chose to put a valuation of $2.5M on the company, knowing that there are outstanding notes at a cap of $10M. The question is: Why would you choose to value the company at $2.5M?
This is one of those companies that has actually done a great job of increasing value, and this was disclosed on the show. Unlike the bio-hacking company (on the same episode of Shark Tank), where the founders asked for a $40M valuation before actually selling anything, Nomiku already has a viable business. The company had a successful Kickstarter program more than two years ago. It has delivered thousands of sous vide devices. It has produced a sous vide cookbook and experimented with a home-delivery program (which it thankfully did not roll out). It has valid, repeatable sales to enthusiastic customers, and the beginnings of viable, scaleable distribution. It is lead by a passionate, crazy entrepreneur.
So why did you offer a $2.5M valuation? I am one of “those investors” in Nomiku, whom you characterized as “all grown-ups”. I invested $200,000 in two of those notes starting in June 2015 and have subsequently provided assistance and advice to the CEO. My investment has not yet been valued, since it is in convertible notes. But I’m a professional investor in my day job, and it appeared to me that a $10M valuation cap was warranted for this company — in 2015.
I am indeed a grown up, with extensive experience in the technology industry (since 1978), including the last 20 as a professional venture investor investing OPM [other people’s money]. I have had to write off investments in more companies than I have made money in, which is actually a core principle of high-risk, high-reward venture investing. I have made money in both my personal and professional investments.
My immediate thought when I heard these words come out of your mouth: Who is this jerk who comes along and, with just 8 minutes of time on a television show for diligence, recommends that the entrepreneur screw her previous investors in order to take your money at a ridiculously low valuation? What sort of entrepreneur-friendly investing is this?
It turns out you are a pretty well-known guy (even before you were invited to join Shark Tank as a Guest Shark). I don’t think I’ve met you before. I apologize if I did and don’t remember. Your web site says that you were corporate counsel at Google (doing M&A, BD and special projects) when it was still mostly a startup company. I think that you must have made enough money during your four years at Google to be able to invest your own money in startups after you left. (You refer to Lowercase Capital as your holding company, so I can’t tell if you raise money from other investors or “just’ invest your own.) You have invested in more than 80 companies, including Facebook, Medium, Twilio, Twitter, Slack, Stripe, Uber, and a bunch of others. (Typing this list makes me insanely jealous of your track record and humbled because mine is comparatively paltry. Turns out that we have co-invested in just one company, Gowalla, where we both lost money.) You have clearly made more money than me and therefore are a better investor.
Not only do I wonder why you offered a $2.5M valuation, but why did you then take the position that the entrepreneur had to go back and tell her previous investors that they needed to have the terms of their investments rewritten? It feels to me that, in that one sentence, you demonstrated exactly why people in my business are called vultures — for a consuming public that has no way to judge this kind of behavior. To wit: Be such a shark that you don’t care about the previous investors (adult as they may be), that you put the entrepreneur on the spot in public, that you do all this in order to improve your own terms at the expense of everyone else, all in the guise of protecting the entrepreneur’s stake in the company.
We can have an adult conversation about re-capitalizing companies that don’t perform or diluting all investors in order to provide a good incentive to entrepreneurs who have struggled to find the right strategy for business success. But I ended up wondering who the real adult was: the investor who treated the entrepreneur with such little respect? Or the entrepreneur who sucked it up on national television to avoid a fight with a vulture?
Note to readers: I did not show this rant to Lisa before I published it. This is a random reaction to Chris Sacca’s investment proposal, not a coordinated response. The fact is that the show was taped back in June, but all participants are legally bound to keep the details secret (even from current investors!) until the show is aired months later.
