The Raise I Walked Away From

Sometimes the most valuable thing you can do on a deal is refuse to bring it to the people who trust you. One example, anonymized.

In my former life, before I invested my own capital, I was asked to bring a private cancer-treatment company to institutional investors. The story was compelling. A treatment approaching its clinical trials. Regulatory approval represented as in hand. An exclusive license to technology developed at a research university, backed by a set of issued patents presented as the company's most valuable asset. An investor base described as already committed. The mandate was large, and the fee at the end of it was real.

It also came with something worth far more than the fee. The introduction would have gone through a relationship I had spent years building, with someone whose word opens doors to serious family capital. Whatever I put in front of that person would carry my name, and theirs.

So before I put either name on it, I went to the record behind each claim.

What the record showed

The regulatory status was not what had been represented. The approval described as in hand was not in hand.

The intellectual property was not what had been represented. I did not stop at the list of patent numbers. I went to the grants themselves, the assignment chain, the license terms, and the remaining life of each patent. What was presented as owned, protected, and in force did not hold up against the record. In a pre-revenue healthcare company the patents are the company, and here the asset the whole raise rested on was not what the story required it to be.

The committed investor base did not exist as described.

Three claims, three records, none of them matching. Any one of them would have been enough.

What I did

I did not place the capital. I did not make the introduction. I ended my involvement and put the reasons in writing, so that anyone who later asked what I had found would have a document rather than a recollection. The engagement produced no fee.

It protected the only thing on that deal that was actually mine: the trust of the person who would have taken my call.

What it taught me

Raising money on a story the documents do not support is not a fee opportunity. It is a liability, for the investors first, and for whoever vouches for it. The most valuable work I did on that engagement earned nothing, and it was the best decision I made that year.

If you are asked to put your name on a raise, verify the thing the whole raise depends on before anyone relies on you for it. Read the patents, not the list of patents. Read the approval, not the sentence about the approval. Ask to speak to one of the committed investors. If the answers are slow, you already have your answer.

I no longer raise money for other people. I invest my own, and I run this diligence before a dollar of it moves. I invest only where the patents actually exist and hold.

Benoit Lapointe invests in healthcare and real estate. He is the principal of Meridian in Newport Beach and spent years in the broker's chair before becoming a principal. benoitlapointe.com