Frankly, I don't know that the guys did anything particularly wrong along the way. It was a series of small things, and at each one, I'm sure they were telling themselves "well, it's not a major deal, we've come too far..." etc. I've been in similar situations before.
The things I keep in mind when fund-raising:
1. The deal is not done until the money is in your bank account.
2. There's no such thing as a "formality". If there's a step in the process, there's a step in the process. It's almost always possible for something to go wrong at any step.
3. Signed term-sheets are tricky. Once signed, there's usually a "no-shop" clause (so you have to halt conversations with other investors). Along side that, the termsheet is non-binding. So essentially, the investor can back-out if they want.
4. Not sure how it's done in China, but here, if the first version of a contract does not match the terms in the termsheet, I'd push back hard and fast. That's not the deal that was agreed to.
Thanks Darmesh. Its pretty much the approach we took, I guess the only thing is that we should have walked away at your point 4. We discussed it, what stopped us in the end was that even though the deal had now changed, it was still a deal we would have happily done.
In retrospect it was a bigger deal than we made of it and we really should have walked away. Rather than focussing on the terms we should have focused on the signals this was sending - something fishy was going on and internally these guys weren't communicating.
Frankly, I don't know that the guys did anything particularly wrong along the way. It was a series of small things, and at each one, I'm sure they were telling themselves "well, it's not a major deal, we've come too far..." etc. I've been in similar situations before.
The things I keep in mind when fund-raising:
1. The deal is not done until the money is in your bank account.
2. There's no such thing as a "formality". If there's a step in the process, there's a step in the process. It's almost always possible for something to go wrong at any step.
3. Signed term-sheets are tricky. Once signed, there's usually a "no-shop" clause (so you have to halt conversations with other investors). Along side that, the termsheet is non-binding. So essentially, the investor can back-out if they want.
4. Not sure how it's done in China, but here, if the first version of a contract does not match the terms in the termsheet, I'd push back hard and fast. That's not the deal that was agreed to.