On Diligence, Dash & Deception
For most Nigerian tech founders, there were two simultaneous thoughts when they read Tage's piece about Dash’s CEO being put on administrative leave.:
The first was "God when" with regard to the alleged $3mm of secondaries followed by "Thank God Prince Boakye Boambong is not Nigerian". The wicked ones would even have gone as far as saying "Thank God Prince is not Nigerian BUT Ghanian" but far be it for me to comment on the evergreen geopolitical tensions between Nigeria and Ghana.
But the real question is wtf??? How did Insight Partners and other VCs get it wrong?
First a Caveat
So let me first start by just saying that all this is pure speculation, everyone is innocent till proven guilty blah blah blah. My kids have not yet graduated so I don't want any investor or company to come and try and sue me for libel.
Please I come in peace.
But going by the facts of the story, it appears that the investors have come to a conclusion that their immediate premise for the investment was faulty at best or that things have gone awry.
Now this is not new; JPMorgan had what seems to be a similar case on paper in their acquisition of Frank that is still being fought. But you have to ask; for all their insightful knowledge and aggregators of information, why can't investors smell when something is wrong?
Do they also fall for the vanity metrics that many of us try to push out?
Or the assured confidence many founders adopt as their shield & armour when they have no decent unit economics to show off.
Sour Grapes?
Dash had launched in 2019 and by March of 2022 had reportedly over one million customers from Ghana, Kenya and Nigeria and and processed north of $1bn. Investors were so impressed that Dash reopened and quadrupled its seed round targets off the back of a 5x rise in users in just 5 month. This $32mm equity raise was discussed on Jason Njoku’s discussion group and here is a taste of some of the comments:
Genuinely surprised I haven't heard of this app. Its great traction no doubt. Just don't see where the 1m customers are. Its not in iOS or Android or app based. Perhaps they are doing something else.
50k app downloads. Something weird. But its not my problemo. Let me face my work.
I don’t believe these numbers. Simple.
The summary of this discussion in local parlance is Hian! (if you don’t understand ask your nearest Nigerian for translation)
In going from a target $8mm raise to $32mm, Dash had clearly impressed investors. Yet some of the more plugged in founders in the region were questioning this deal. Was it sour grapes?
(Not) Doing Diligence
The investment was supposedly the first led investment by Insight Partners into an African startup and came with the standard “Why we invested” narrative. Quoting from this:
Dash has perfected a connected wallet for a connected Africa.
"Dash stands out against competitors with its consumer-friendly, highly flexible wallet offerings to meet the needs of African consumers. Dash's platform acts as infrastructure for the large percentage of Africans that are unbanked, removing the barriers associated with daily transactions and cash utilization,” said Deven Parekh, Managing Director at Insight Partners. “We look forward to working with Prince and the Dash team as they continue to grow and scale up.”
When things like this happen, everyone loses. Sure there will be the haters who say “I knew we were better than them or cooking their books” but legitimate entrepreneurs are forced to put up with bullshit diligence because some 22 year old VC investor (harsh I know) is unsure of what he should be asking for.
What next? Will investors ask founders to undress before they wire your funds?
The danger is that investors who to date have not significant traction or returns from some of their investments may then resort to the narrative of a single story.
And this means I ultimately don’t get the exit I deserve - WTF!
Just joking but it does mean that the fundraising and operating environment is more difficult. So what to do?
Doing Diligence
There are three ways of doing diligence from what I have seen on my short life on earth:
Wing it. NoSenseVC invested in their Series A - Tommy who is the lead is my guy so I will just invest
Significant desktop analysis with a focus on third party (i.e. not the company’s data) to validate transactions
Enter market with the founder, by fury by force
I will add a fourth which is cheap as chips and that is just talk to founders in the space. I am shocked too many times at some of people who have gotten money. Simple DD from a few people who had worked with them would have revealed, shall we say ‘stories that touch’. But even if that one is too easy, the 2nd option above of 3rd party validation is not too hard.
In this interconnected world, there are so many way to triangulate data especially now that so much is outsourced. If an investor were to do diligence on Carbon (please, we invite you :smile: ) you could verify our numbers from so many angles.
KYC checks from Bank Verification Number check
Google & iOS downloads with appropriate discounts for drop-offs
unique customer payments via payment processors
The Almighty Bank Statement - if you review this well no weapon fashioned against you by any founder shall prosper
My altruistic offer
I could go on and on but I have made my point. Please Mr & Mrs Investors, diligence is not too difficult. Many of us are very smooth talkers and will sell you in your market. But the legitimate ones don’t mind appropriate diligence. And we are a small community. Help us to help you.
p.s. I am also available to help you in diligence. One phone call, one reference, $1k. It sounds high but imagine how much you can save. Slide into my DMs.
Love from Lagos.
Very simple... and funny