Start-up founder Rod Lewis says his relationship with the dealmaker behind Xinja’s lifeline investment that never materialised is one of the worst experiences of his career.
First Penny Investments chief executive Michael Gale won praise for brokering a $433 million capital injection for neobank Xinja in January from the Middle East. But the money never materialised and now Xinja has cancelled its banking license and is returning all customer deposits.
Mr Lewis is nearing the end of a 12-month contract with First Penny Investments that cost his business around $40,000 and said nothing has been achieved.
“I’ve never worked with someone who has been this unsuccessful, not just in funding but pretty much anything,” Mr Lewis said.
Mr Lewis has been the chief executive of health start-up MediKane for almost a decade and has been able to raise more than $8 million through his own networks and the use of “dating apps” – companies that link entrepreneurs with investors for a fee.
These third parties charge around $8,000 per year and Mr Lewis said he has been introduced to 35 investors within four months since he gave up on First Penny Investments in September.
“Gale was supposed to do that,” Mr Lewis said. “But I did not get one introduction. Not one. He blamed COVID – which was crap. I’ve managed to meet lots of people and raise money.”
Mr Gale approached Mr Lewis out of the blue late last year, claiming he had investor networks all over the world – New York, China, Switzerland, Dubai – which could help his business.
Mr Lewis initially dismissed the offer but after “over a dozen” phone calls, he met with First Penny’s associates and ultimately agreed to take him on. “I met the team, they were energetic, intelligent, they knew the raising process,” he said. “All I can say is I was impressed with what I saw and I signed up.”
First Penny re-wrote the financial material provided to investors, but Mr Lewis said this took four months and the content “was not much different” to the original version.
But the main issue Mr Lewis and his partners had with First Penny’s services was the lack of communication about the status of any deals. In the start-up industry, it’s crucial to receive feedback on why negotiations failed so directors can adapt and improve.
But Mr Lewis said no one from First Penny updated his team on why progress was slow or what they had achieved and often phone calls went unanswered.
“Gale promised me on several occasions he would pick up his game and give me more feedback. I got no feedback,” Mr Lewis said.
“Raising money is always tough. All you want is people to give you warm, objective introductions. If they do that, I think their job is done.”
Mr Gale denied all claims as “untrue and defamatory”, threatened legal action and said it was Mr Lewis that approached First Penny, not the other way around.
“First Penny is under non-disclosure agreement with all of our clients both present and past and the obligations are ongoing even when we no longer work with them.
“We take our obligations to clients seriously and we don’t ever say negative things especially not to the press. I can’t therefore comment on why Medikane was unsuccessful in gaining investor traction,” he said.
Mr Gale had previously confirmed he had not made any major deals for his clients over the past 12 months, and said travel restrictions due to COVID-19 were to blame.
Other First Penny clients have described similar experiences of no capital raised and no introductions organised but none were prepared to go on the record as they remained hopeful deals would materialise.
One client, who spoke on the condition of anonymity, said he was told money would start flowing once First Penny clipped a commission from the Xinja deal. “Our business has been impacted by COVID, so we understood a lot of the delays, but it doesn’t help the frustration.”
First Penny consultant Richard Heale said clients who were not able to raise money benefited from the documentation provided.
“In the investment banking world, you pay money up front to have someone try and facilitate a deal and prepare documentation. From my perspective, from within First Penny, every client has been more than adequately serviced.”
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