The acquisition of Frank by JP Morgan was initially seen as a strategic move to tap into the mobile banking market and cater to a younger demographic. However, you know how this turned out.
At first glance, the acquisition of Frank seemed like a smart move for JP Morgan. Here’s why:
Expanding into the mobile banking market
With the increasing popularity of mobile banking services, the acquisition of Frank would have helped JP Morgan gain a foothold in this rapidly growing market.
Targeting a younger demographic
Frank’s mobile banking app was designed specifically for college students, which would have allowed JP Morgan to cater to a younger audience.
Leveraging innovative technology
By acquiring Frank, JP Morgan could have benefited from the startup’s expertise in mobile banking and innovative financial planning tools.
Enhancing product offerings
The acquisition would have enabled JP Morgan to develop new products and services that meet the evolving needs of its customers.
But we know these things did not come true.
What could JP Morgan have done?
Conduct thorough due diligence
Performing comprehensive due diligence is crucial before making any investment. This includes reviewing all available information about the company, its founders, and its financials. In the case of Frank, JP Morgan may have overlooked some red flags or failed to dig deep enough during the due diligence process.
Verify user numbers and growth claims
The red flags JP Morgan missed were right in the numbers. The discrepancy between the claimed 4.25 million registered users and the publicly stated figure of 350,000 people helped should have raised concerns for JP Morgan.
Scrutinize company valuation
It can be easy to get caught up in an exploding valuation. That doesn’t mean the valuation is realistic. In the Frank acquisition, Javice’s counterclaim suggested that JP Morgan had access to due diligence materials and valuation data. That should have prompted further investigation and questioning.
Assess the credibility of founders and management team
Always evaluate the integrity, track record, and reputation of the founders and management team before making an investment. Javice was featured in Forbes’ 30 Under 30, that should have been the first red flag (just kidding…kind of).
Really what this boils down to is not cutting corners in order to get the deal. If Frank was highly valued and sought after, would JP Morgan be in this mess? We’ll never know. But hindsight does make it seem obvious that not double checking every claim, team member, and aspect of a start-up is vital for catching red flags.
Did you think Frank was suspect before the acquisition or did the news come as a surprise to you as well?
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