Naturi

In no way could the founders accept the Seed Note Term Sheet from Waltham Partners. Most of you noted the outrageous valuation (4.5M for 50% stake) and the “suicidal” terms. One term stood out to me; in 6 months, Waltham had the right to not exercise their option and then force NatuRi’s to pay back the $500,000 loan and accrued interest, which would have probably led NatuRi in bankruptcy and allowed Waltham to claim the IP placed as a security.

The founders were extremely knowledgeable and very experienced. They didn’t need to rely on their investors’ connections and market expertise. The angel investor, even thought he was only bringing money to the table, was therefore a perfectly suitable match. It was also fair to assume his terms would be favorable. In addition, he was offering $1M; twice as much funds that what the founders were seeking. You were too quick dismissing him.

There were two milestones that would significantly reduce the risk of the venture to potential VCs and would increase the evaluation: (1) being able to manufacture good quality NatuRi, and (2) successfully pass the multiple FDA approval stages. Both could be significantly mitigated within 6 to 12 months.

It would have been interesting to lay out each milestones (in a timeline) and an evaluation of the level of risk, expertise and financial resources needed to achieve each. With this analysis, it would made it clear how to pair each milestones with each investor (angel, VC firm, strategic investor) such as in the chart below:

Source: The Company Financing Lifecycle Primaxis Technology Ventures

It’s in the best interest for the founders to structure their financing in way they can mitigate the investors risks by completing milestones and therefore minimize the amount of equity they need to relinquish.

NatuRi had to refuse the deal by Waltham Partners, secure their seed round with the angel which would have provided 12 months of funding; enough time to demonstrate that they are...