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Toby Hammond

Be careful who you trust - how choosing the wrong investor destroyed a great startup

I didn’t understand the investment documents, and they’d changed the deal at the last minute. It was December 2008, the height of the financial crash. I was in Shanghai and horribly, horribly, jetlagged.

I decided to just sign them anyway.

 

A few years earlier I’d co-founded a British startup called Better Generation. We’d set out to promote small-scale renewables, selling solar and wind generation kits. We’d also created a popular renewable energy website and had begun developing a new device to help people measure their site’s viability for wind or solar, and the potential carbon savings. We’d got some TV coverage and been in a few newspapers. We weren’t making much money, but it was a lot more fun than my old graduate consultancy job.

The Guernsey-domiciled VC investment firm, Beyond Asia Capital, had approached me earlier that year. They said pretty nice things about our startup. Their energetic founder, a British former CEO of Microsoft Hong Kong, said they saw a big market opportunity in small scale wind energy, and their fund’s investment thesis was connecting Chinese manufacturing capability with access to western markets. They had money and some impressive connections, and they would mentor me. It was exciting.

On the 23rd floor of a smart new building in the downtown Jing'an district of Shanghai, their offices were buzzing. It was my first time in China and they’d flown me over to meet the whole VC team, and had put me up in a nice hotel (where I had failed to sleep). Their analysts spoke in investment jargon I didn’t honestly understand a word of, but it sure sounded good and felt like the start of a big adventure.

The legal documents I was presented with ran to well over 100 pages and had been drawn up by their fancy London law firm. Several clauses referred to scenarios for ‘terminating the CEO’ (perhaps a bit excessive?). My own legal advice relied on the generosity of an ex-girlfriend from my schooldays, now working in corporate law, who valiantly tried to help me understand what on earth it all meant over email. Only later did I learn that the junior lawyer on their side had a crisis of conscience about how much they were shafting me.

With the documents signed, our first tranche of funding was released. I was the CEO of a startup that was going places! Back in London, we moved into a loft style office, in an up-and-coming district near Tower Bridge, and started to grow our team. I visited factories in all corners of China and signed a deal with one in the city of Chengdu to manufacture our new product, a wind speed logging gadget which we dubbed the Power Predictor. It was designed to record specific wind energy at the user’s proposed site and crunch that data to forecast wind turbine energy outputs and carbon savings (using what would now be called an app, and writing that sure makes me feel old).

By the following year we had launched the Power Predictor and started building distribution networks across the world. We featured on the BBC weather channel and in the UK consumer Which? Magazine. Our sales were at around $1m, and a version 2 launched in early 2010.

But beneath the surface, all was not well. Shortly after closing the investment, it had become clear that the VCs themselves were in hot water. Their other deals had gone south, and the investors behind their fund were on the warpath. The fancy Shanghai office quickly disappeared. All eyes were on Better Generation to succeed. Then the fund CEO told me he was going to become the Better Generation “Group CEO”, based out of Hong Kong. This man had an abundance of self-confidence and an incredible talent for spin. The implication was that I was out of my depth running Better Generation (and perhaps I was). An old crony of his was appointed Sales Director on what seemed like an extravagant package and tasked with flying around the world business class to “do deals”. A new Hong Kong-based CFO was brought in, whose previous AIM-listed company had gone into receivership in murky circumstances. The centre of gravity moved to Hong Kong, and somewhere along the line I stopped seeing the financial data or being involved with decisions. I had been sidelined, and I didn’t know what to do about it. But I would still awake each morning in London to an inbox of stressy emails from Asia, because we were fast running out of money.

I considered staging some kind of coup, but it was useless. I had no control and no say anymore. The social mission of our company seemed to have become a junket, our suppliers were being treated appallingly, and I was really hating it. So, six years after founding the company, I did the only thing left. I resigned. The investors invoked a hidden clause in the investment agreement I didn’t know about, and issued 1.2 million new shares, diluting me into oblivion (and heavily diluting the original investment fund too), instantly taking the Global CEO personally from zero to the largest shareholder. The enthusiastic young team we’d built gradually all got jobs elsewhere, and the next year, my once-ethical company did a runner on their London office, scarpering with unpaid rent outstanding and leaving the place in a complete tip. The company was formally dissolved the following year.

At the time, it felt like a pretty awful failure. I hadn’t sought the right advice, I’d been really naiive, and I’d screwed things up. Not entirely co-incidentally, my relationship with my thenfiancée fell apart around that same time. I left London and it took me a couple of years to really recover.

Ten years later and it feels cathartic to write that down. Looking back, that experience taught me plenty of lessons which serve me well now. If I could counsel my younger self, I would urge him to seek more advice from peer entrepreneurs. They will always be wrestling with many of the same issues (including self-doubt). And I would tell him to do things on his own terms, trust his instincts and watch out for that bullshit. On some level I had always thought there must be definitive ‘right’ and ‘wrong’ answer to every business challenge, if only I could discover them. I now know that everyone’s guessing, bluffing, failing and learning. But people really weren’t so open about the ‘failing’ bit, back then.

Futurepump came into being in 2013 because of a chance encounter with a brilliant Dutch pump inventor called Gert Jan Bom via a YouTube video. Gert Jan is the direct opposite of my previous business partners. He is passionate about pumps in Africa but has little interest in self-enrichment, and, refreshingly, he quickly glazes over if you start talking about shareholder agreements. From the office of his non-profit, the PRACTICA Foundation, he emailed me the blueprints of his latest solar pump designs before we’d even met. No NDAs for him. I felt like this was a human being I wanted to work with.

In the last eight years our small team has built Futurepump from a standing start to be one of the leading solar irrigation pump companies in the world. We’ve sold 8,000 impactful solar pumps to low-income smallholder farmers across Africa and Asia through a network of fifteen trusted distributors. To date we’ve taken on no dilutive capital at all, by which I mean the whole company is owned by the operational team (including all key staff). We’ve been extremely fortunate to have won financial support from the likes of USAID and other international donors. They support us because our solar pumps deliver transformational income improvements to low-income farmers, and also displace the widely used fossil fuel pumps. It would not have been possible without their support.

But, reflecting back on my previous experience, the biggest reason that we have been able to get this far is by attracting talented and motivated colleagues who believe in our mission. My cofounder Quentin and I have not pretended to know all the answers. We treat our team as well as we can, but we do not pay the best salaries. We can’t offer structured career development training so instead we all learn together on the job. We expect our team to be committed and adventurous, and we do not track annual leave, hours-at-desk or expenses. Our ethos is very much ‘trust and verify’ rather than ‘command and control’. Our purpose is to improve our customers’ lives, and cut carbon emissions, and that’s what drives us all.

This year we opened a large new bespoke factory in India, on a two-acre campus which will enable us to double our manufacturing capacity. If you are wondering how on earth we managed that, it’s once again because our co-founders and partners in India are as passionate about our mission as we are, and they were able to put in place some very beneficial arrangements for our future growth. Our product designs are now mature and some units have been operating in tough field conditions for over five years, and we have just launched a new entry-level solar pump which retails for as little as $330, half the cost of our earlier model. We are all set for our next phase.

So now, we have finally decided the time is right to raise equity investment. Why are we doing this? Because a recent Dalberg report identified 5.4 million farmer customers in sub-Saharan Africa who need pumps like ours (a market worth $3.5bn). To play our part in serving that kind of market, we need to step up a gear. We have some exciting plans to do just that, and so we need some growth capital.

But we are seeking to raise this money not through backroom deals with large corporates or alpha-male investors. Instead today we are launching a crowdfund where for as little as £10 ($13) anyone can buy shares in Futurepump and join our mission to serve the 100 million smallholder farmers globally whose lives can be improved using this ultra-sustainable technology.

A lot has been achieved but we’re only just getting started. Join us today at www.crowdcube.com/futurepump

And yes, this time around, I am taking all the advice I can get.

Toby Hammond