Signed, Sealed, Not Delivered. How a $17M Investment Was Lost.

Stories like the Elizabeth Holmes Theranos scandal have received full coverage and media attention, touching on the alleged fraudulent claims she made to investors. Everyone loves to speak about startups ‘faking it until they’re making it’. Especially when they fail.

But what happens when investors use the same method to negotiate and close deals with startups, despite not having their own funds secured?

There’s a fine line between ‘faking it til making it’ and misrepresenting the reality.

We experienced it first hand — from the investors’ side.

Today we are sharing a chain of events that brought challenging times to our company, but is ending with a positive twist, through new investment and M&A opportunities.

Rapid Growth Attracts Investors

This chapter of Pico’s story begins right after the Covid-19 pandemic broke, amplifying brands’ reliance on digital assets more than ever. While many companies in our space, unfortunately, went out of business, Pico raised funds and achieved more than 250% growth on all metrics and KPIs.

Our client base grew, with around 80 of the world’s leading sports clubs in major professional leagues throughout the US, Europe, and Asia, along with some of the biggest brands in the alcohol, beverage, and consumer goods industries. They utilize Pico technology to become owners of 1st party data on their digital audience, using it to create personalized consumer experiences.

In early 2021, we went out to raise our Series-A to support our rapid growth and scale. Numerous investors expressed interest and we engaged with a leading investment bank to help us secure the right lead investor.

One of those funds was a well-known London-based VC firm — whose details won’t be disclosed at this time — which together with its executive chairman, was introduced to us as an established firm. They had the talk to back it up, with multiple funds and assets in China as well as several investments in Israel. More importantly, they had just founded a new venture-backed digital agency for the European sports world, led by top executives within the industry. They spoke confidently about their leadership team’s vast experience in sports and the joint ventures already in place with leading European brands.

After an initial due diligence, they offered to lead our Series-A round with up to a $17M investment, which included approximately a third of the money as an initial investment, and the rest over the next 2 years.

In taking our time to negotiate other offers, we received the investment bank’s approval that the fund and agency are legitimate with proven ability to invest. In addition, we spoke to fellow founders with whom they had previously invested to add another layer of assurance.

In April 2021, we decided to pass on other opportunities and signed their term sheet, excited about an upcoming round that included a strategic lead investor and financial investors to expedite our growth.

We started an intensive due diligence process that included legal, financial, and tech. At the same time, work had begun on deals in the sports space with their partners.
It was exciting to see how the value created at Pico aligned perfectly with their network and brought forth potential deals to the table.

First Signs of Red Flags

At the start of the process, they shared that they were waiting on external funds to be wired into their accounts shortly, stating that funding is secured. In July 2021 all parties signed the Series-A round’s definitive agreements, with a commitment to wire the money by August 31st, 2021.

Based on their binding commitment, we mutually decided to act fast and continue Pico’s expansion. The first step was to grow our teams, raising our monthly burn rate by 30%. All this time it was communicated that the wire transfer would happen on schedule.

The deadline had passed and we did not receive the funds. Concerns began to grow. It turned into much more when we asked for an explanation and they kept saying it was only a matter of days, and that the money was in transit, approved by relevant banks and waiting to hit their bank account.

In late September, we realized the deal was in trouble and our runway could be in jeopardy.

In early October, updates we received intensified our concerns. The firm admitted that actually, they had no written commitment on when they would receive their funds. Yet they kept on insisting the money will be in hand soon and that we should remain patient.

By mid-October, when we heard nothing new, it was clear to us that the deal was not going to happen. We notified them of a contract breach and started a litigation process.

It’s Always Darkest Before Dawn

Some investors might leverage a good deal to raise capital for their funds. However, it is extremely unusual for investors to take a tech company at its prime through a long due diligence process, sign a definitive agreement of this size, and show up with empty pockets.

Luckily for us, this story has the makings of a happy ending. With our resilient and passionate team, supportive investors, and partners, we continue to grow. Thanks to tier-1 clientele and the fact that first-party and digital audience data in a GDPR/CCPA world is one of the biggest challenges out there, we’re able to actively negotiate new investment opportunities and explore M&As. But that might not be the case for other startups who may face similar drawbacks.

When this went down, we debated for a while whether to share it at all. While the media is exploding with success stories, we feel responsible to tell our story to help others avoid a similar situation. On the other hand, however, no one wants to say they lost $17M.

You can see the direction we chose.

Have any questions?
Want to chat?
Please feel free to reach out to me directly: asaf.nevo@picogp.com