I once knew a company that had a billion dollar idea, unique product assets and tremendous market respect. The company was poised for great success and only needed investment capital for re-branding the business and for some limited product development. Investors swarmed and bid up the company valuation. The company accepted an offer from a group to invest. During due diligence, the investor saw a flaw in the company: the CEO. Although he was creative, he was not a leader. But, mesmerized by the opportunity, the investor closed the deal.
Several years later, the investor walked away from a smoking crater that once was where the company stood. The company did not use its investment capital well. Employees worked hard in all the wrong directions, wasting their time and the company wasted its investment capital. When the money was gone, the company had nothing to show for its labors. The investor lost money, the founders lost their equity, employees lost their jobs and customers never enjoyed a revolutionary service that would have radically changed their customer experience for the better. That was years ago, and still millions of American consumers are paying more for a clunky service that this company could have revolutionized, if the investors had followed their judgment. They should have said no when they saw the flaw in the company during due diligence.
by Dr. Forres Nabors
Alyeska Venture Management