Even the Vikings Had to Stretch
Make no mistake, Wall Street is a battle zone. There is excess aggression and emotion everywhere you look. I have often thought that the only thing that separates successful Wall Street professionals from the rest of the world is their level of drive and ability to withstand pain. Sometimes the battle rages for gain alone, but often the battle is for the battle sake. Worst of all is when the war is engaged to thwart others. A favorite cartoon shows two dogs at a bar with the more fierce-looking dog saying to the other, “it is not enough that dogs succeed, cats must also fail.” Anyone on Wall Street long enough has seen or been mounted by one of these male dogs, just to prove to ourselves that we have failed. But, as fearsome as they are, these Vikings of the global financial world have their weaknesses just like anyone. Yes, Virginia, even the Vikings had to stretch before battle.
We have been engaged with a small, boutique investment bank in London. It came highly recommended by several of my colleagues, so I met with them. They seemed capable and willing, which are the two characteristics we needed to get a fundraising launched. The discussions were advanced enough at hat stage that we were able to agree on a letter of intent (LOI) to proceed with a transaction. They anticipated about three months of diligence to prepare for the launch. I was convinced by my supportive colleagues that while diligence would be longer, once accomplished, they were more certain of achieving the funding goals than most any others. I was a bit skeptical, but willing to test the waters.
We launched into the diligence process and had three basic work tracks being pursued simultaneously. There was the technical analysis (quite necessary for a scientific research company like ours), the financial analysis (using our model and maket data to test our financial assumptions and projections), and the marketing preparation (tickler and pitch deck in addition to target lists and general funding process). This was an obvious but comprehensive plan of attack.
The technical analysis is always challenging with new and disruptive technology. You are assessing landscape where no man has ever gone before. That’s difficult both in terms of the analysis, but also just in terms of who you get to do the analysis. In this case, the bank sourced a chemical engineer who specialized in this sort of investment analysis. He had the general expertise in the scientific and engineering arena to be generally credible. However, his specialized expertise in our more narrow slice of the chemical space (specifically electrochemical reactions) was restricted to the traditional forms of electrochemistry. Given the unique nature of our endeavor, this was not surprising, but we noted it nonetheless to the bank and they were gracious in saying that he was who they wanted to use. Fair enough.
We downloaded all the technical information we could to this consultant and even went so far as to write two technical papers which addressed the specific questions he would be addressing. They broke the enterprise into two endeavors; making the magic component and then using the magic component in a scalable reactor to produce a result. Each of those two papers addressed the process, the schedule and the outcome anticipated. They both discussed the inputs and the current status of the effort. They even addressed in a “light” form, the risks and challenges we faced to get to the conclusion we anticipated. We thought they were at least perfect roadmaps for consideration of the exercise.
As expected, the consultant took all that in and then began his own diligence, which included meeting with our staff members and asking multiple questions. He visited our primary laboratory and testing facility and was given a full-day tour of the team, process and project plan for getting to where we said we could. He did not take the time to focus heavily on the secord part of the equation involving the reactor and pilot plant other than to talk to our people involved. He did not visit the two facilities to kick the tires on what we had already built and accomplished and to assess our ability to deliver what we were promising in that arena.
His technical diligence report was very complimentary of our team and process. It was equally positive about our positioning against the competition and our state of play. Where it diverged was in the technical assessment of what we claimed was achievable for productivity and, more significantly, the time it would take to get there. Surprisingly, in terms of months/years, the biggest difference was not with part one of making the magic component, but rather part two of deploying and scaling the component in a reactor and pilot plant. That means what he actually saw he bought into and that which he had not seen was disputed in terms of both what was achievable and when.
The debate which ensued was civil, but animated and it was clear that he was basing his opinions on traditional expertise and industry standards, not on specific issues with our effort. Like any technical sparing match, it very much sharpened our thought process and our game for dealing with tough questions from investors. The key imperative would be to note the differences and the basis for the differences in opinion. Those are issues of confidence and belief in the value of the disruptive effort. Strangely enough, the consultant agreed with us on the market need, our competive position of being out ahead and the overall likelihood of the technology to generally succeed. That was good. But games like this are won and lost on timing and that remains the important distinction to be made.
The financial analysis was easy since we agreed to let the bank recast the financial model in a manner that gave them the full heuristic capabilities they wanted. It took any disagreement out of the situation by definition (my exact strategy in doing so). The marketing materials required a bit of to-and-fro, but nothing significant. The messaging and pitch was easy to agree with the 40 years of investment banking history I enjoy.
The lesson from all of this was the classic “what doesn’t kill you makes you stronger.” The bank has put us through our paces quite diligently, expecially in the technical area, which is appropriate for this venture. We are back to being Viking out to conquer the known world with our disruptive technology, but we are well-stretched and better-prepared Vikings for all of it.