South African e-health startup Healthcent has secured funding from Umkhathi Wethu Ventures and Allan Gray in order to further roll out its products to medical practitioners.
Here Is The Deal
Founded three years ago and angel-funded until now, Healthcent is the company behind the mobile messaging system Signapps, which facilitates collaboration and rapid response to patient needs by medical providers.
A mobile-first, cloud-based messaging and collaboration platform, Signapps is already being used by 30 customers comprising public and private hospitals and hospital groups, practices, associations, and funders of care. There are over 2,000 users registered on the platform.
Healthcent has now raised an undisclosed round of funding from Umkhathi Wethu Ventures, in partnership with Allan Gray, to expand its reach into the wider South African healthcare sector and further develop the capabilities of the product.
“Collaborative healthcare delivery is a new buzzword internationally, and the investment by Umkhathi Wethu, together with Allan Gray, is a vote of confidence in our vision for Signapps and traction of the Signapps product in South Africa,” said Andrew Davies, chief executive officer (CEO) of Healthcent.
“Our purpose is to transform how patients are cared for in South Africa. Our objective with Signapps is to be the simplest, most effective, care coordination platform for people and organisations in the healthcare ecosystem, and to ensure that the patient remains firmly at the centre of the treatment universe.”
Rob Dower, director of Allan Gray, said his company’s internal ventures team was looking to fund the development of new businesses that can make a significant difference to society.
“Healthcent is the first company in South Africa to offer a secure mobile messaging application designed specifically for the healthcare sector. This allows medical professionals to avoid the inaccuracies, delays and risks of paper-based record systems, without resorting to social networks to coordinate care, which are inappropriate for many reasons,” he said.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
As a way of saving cost for startups and businesses in Nigeria, it is wrong for landlords, lessors, hirers in Nigeria to demand VAT on rent paid by tenants or lessees, hirees of residential premises according to the Federal Inland Revenue Service (FIRS). The VAT is only chargeable on premises used for commercial purposes.
Here Is Why
Residential premises are exempted from VAT under paragraph L(C) 6 of the FIRS Information Circular №9701 of 1st January 1997.
Who Pays VAT, Landlord or Tenant?
From the clarification from the FIRS, the tenant, lessee, the hiree pays VAT for use of commercial properties since he/she pays the rent, whereas the landlord pays the Withholding Tax (WHT) in respect of the property. Withholding tax is usually 10% of the rent and the agent or legal fees.
Yes. Both may form part of computation for rent in respect of all properties whether residential or commercial.
However, here is the trick: where agency or legal fees are charged by the landlord, hirer or lessor where the property is purely for commercial purposes, the lawyer and the agent has to pay 5% VAT each (that is total of 10%) on the fees. The VAT is deducted by FIRS from the total value of the transaction.
Where no agency or legal fees are charged where the property is purely for commercial purposes, VAT is restricted only to rent for use of the commercial property. In this case, only 5%.
Residential properties generally do not attract VAT. However, where the lawyer or the agent charges his/her 10% fee, VAT of 5% will be charged on those fees collected by them.
The Implication of This:
This simply means that your landlord, lessor or hirer cannot add VAT payment to your rent where you are using residential premises unless you are also paying agency or legal fee. In practice, this may apply to first-time tenants who have to pay agent or lawyer’s fees together with the rent.
For tenant, hiree or lessee of commercial premises, he/she must continue to pay VAT on rent for use of such premises, virtually on yearly basis, depending on the payment period. Where agency or legal fees are paid, VAT will also be paid on them, in addition to the VAT already paid on the rent.
In essence, new tenants will receive double VAT deductions for their first rent payment for use of a commercial property. Subsequent tenants of commercial properties in Nigeria will have VAT restricted to only to rent paid.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
The disruption game is on. Swvl has raised more money and it is currently staging a major feat in Kenya. Swvl riders in Kenya will now save their MBs while onboard Swvl buses, as well as have access to online entertainment, similar to the experience you have onboard a plane with mini TVs sticking into your faces.
Here Is All You Need To Know
This innovation is by way of a partnership with BRCK, a Nairobi-based startup.
The partnership will see BRCK installing free WiFi and online entertainment on its buses in Kenya.
The Kenyan BRCK startup has developed a rugged, self-powered mobile WiFi device for internet connectivity in areas with poor infrastructure.
These WiFi routers are being installed by BRCK in Swvl buses to have riders access the internet using Moja, a free WiFi network BRCK that also comes with entertainment content including Music, TV shows, cartoons, and books.
The users can access free content by downloading Moja’s Android app.
BRCK has already installed its routers on 15 Swvl buses and is expected to take this number to 700 by 2020.
Swvl is paying a monthly fee to BRCK for installation and maintenance of the routers.
Top 10 Startup Funding Africa, 2019
Extension To Other Markets Outside Kenya
Swvl and BRCK have not confirmed if they plan to extend their partnership to other markets where Swvl operates.
BRCK’s network is already available on a large number of minibuses (Matau) in Kenya and Rwanda with over 445,000 unique monthly active users, TechCrunch reported citing company data.
Swvl, since launch in 2017 in Cairo, has expanded to Alexandria, Nairobi, and Lahore, with tens of thousands of daily bookings in these markets. The startup had recently raised $42 million in one of the largest tech investment rounds of MENA. Careem had also announced last month that it will be providing free WiFi to all the riders in UAE.
This is a classic way startups can effectively leech on to the existing value chain.
Swvl’s Business Model
SWVL’s goal is to make it easier for Egypt’s residents to book bus rides at a fixed rate on existing routes.
Users schedule trips, pay online or in cash and are given virtual boarding passes.
Even with fierce competition from the likes of Buseet and Uber vying into premium public transport service, SWVL’s application has been downloaded for well over 360,000 times on Google play store and Apple iStore.
The platform completes 100,000 rides monthly.
It was the first company to introduce the service in Egypt in 2017 before Careem and Uber joined the sector late last year.
Swvl is however different from its competitors because of its series of partnership deals. The startup’s credit facility agreements with Nasser Social Bank and EFG Hermes Bank, and after-sales support and maintenance services with Ford-trained technicians are some of these moves.
What Egyptian SWVL users think about the startup is its priority on affordability, comfort, and safety.
Not Afraid Of Competition
Although Swvl is the first riding app to offer bus services in Egypt, giant transportation startups Careem and Uber have recently offered their own bus services.
Mostafa Kandil, Egyptian CEO and founder of Swvl, has however noted that the joining of Uber and Careem to the industry has not influenced Swvl’s growth asserting that they have witnessed remarkable development since the two competitive players have launched. In 2018, the startup was valued at nearly US$100 million, becoming the second Egyptian company after Fawryto reaches these figures.
The startup has recently signed an agreement with Ford motor company to deploy more cars on the road. Ford Transit, which the startup intends to use is already the third best selling van of all times. SWVL is already in possession of about 100 Ford Transits. Hazem Taher, SWVL’s Head Marketing Manager, said the vans were ready to go and they’re excited to push them on SWVL’s route.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
Indeed Flutterwave is looking at China’s population of 1.4 billion here. It has just announced it is going into a landmark partnership with Chinese payment solution Alipay, which overtook PayPal as the world’s largest mobile payment platform in 2013, and is today the world’s number one mobile payment service organization and the second-largest mobile payment service organization in the world.
The Flutterwave/AliPay connection is probably the biggest thing to ever happen to African tech if we understand the full implication. China is in play guys. Over One BILLION users are in play. I have always said, don’t build for Africa…..alone! Victor Asemota✔@asemota, a social commentator.
Here Is The Deal
Payments is partnerships and we’re happy to announce that we have partnered with @Alipay to create even more avenues for our merchants to seamlessly receive payments from customers all over the world, Flutterwave noted on its Twitter handle
What this means is “ that all our merchants can accept or install Alipay as a payment type to accept payments from its billion users,” Flutterwave CEO Olugbenga Agboola said in an interview.
“There’s a lot of trade between Africa and China and this integration makes it easier for African merchants to accept Chinese customer payments,” he noted.
The partnership is crucial because Flutterwave will earn revenue from the partnership by charging its standard 3.8% on international transactions. Flutterwave currently has more than 60,000 merchants on its platform, according to Agboola.
There’s also a catch for Flutterwave, as being integrated with Alipay now gives all of its merchants access to more than 1 billion users on the Alibaba product.
“Alipay is available in addition to card, Barter, Mobile Money and other payment channels on the Rave checkout modal,” Flutterwave said in a statement.
“We’ve set out to provide the complete payment solution for Africans to thrive in the global economy. The complete payment solution would first require interconnectivity within Africa, then connectivity from Africa to the world,” says Flutterwave.
Flutterwave is a Lagos and San Francisco-based fintech startup. The Nigerian B2B payments platform allows African companies to send out payments to other firms around the world.
Access To Chinese And African Markets
This partnership with Alipay which has a large network in China will help Alibaba capture payments activities between Africa and China, whose volume has been put at USD 200 Bn.
“Because of that I was in China to do meetings with Jack Ma and the only ask I had from that trip is ‘I want to be the Africa payment infrastructure that plugs directly into Alipay,’ ” Agboola said.
Flutterwave has been able to connect African countries such as Nigeria, Kenya, South Africa, Ghana, Uganda and Rwanda with one another. This makes cross-border payments easy for several companies.
“So it was about time we connected Africa to the world. We started with the U.S already, but you can’t connect Africa to the world without China”. @Honcho_Honips
With this partnership, there is a high probability that you’ll be able to pay your Chinese import agents directly with your naira.
I know #WaverSZN sounds like an empty boast or just a fun term but to us, it means a lot. It’s about living our dreams. Our dreams of building out a platform that empowers everyday African merchants to meaningfully partake in global trade.
Alibaba founder Jack Ma has made several trips to the continent and this March announced the $1 million Africa Netpreneur Prize for African startups and founders. Chinese company Transsion — a top-seller of smartphones in Africa under its Tecno brand — operates an assembly facility in Ethiopia and announced its IPO this year.
Earlier this year, Flutterwave entered a collaboration with Visa, and the team-up launched GeBarter, a consumer payment product for Africa.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
In this interview, he speaks on the need for Africa to bridge its yawning infrastructure gap and how the AFC is working towards providing the infrastructure base that will allow for regional trade to take place on the continent. Excerpts:
Despite efforts of development finance institutions to boost infrastructure outlay, Africa still has a huge infrastructure deficit. What needs to change to bridge the gap?
There are several ways of looking at Africa’s infrastructure gap. Let’s start at the macro level. Look at the investment required for infrastructure; it is about $170billion annually and most of that is for water and sanitation infrastructure which should take $67billion. Energy requires an investment of about $50billion, transport and logistics take $47billion while ICT takes $7billion.
However, Africa has been spending $77billion annually on infrastructure in the last seven years and that leaves a deficit of about $93billion. So, we should look at areas where the private sector can come in such as transport and logistics, based on a public-private -partnership basis.
Why is PPP not as forthcoming as you would like?
There are several points through which the private sector can come in. Water and sanitation is a bit of a challenge for private sector investment because they are viewed as social goods and so governments need to really concentrate on that. For energy, what is important is a pragmatic view of what is required. Governments fail to understand that they alone cannot make the investments that the continent needs, so they need private players. However, they need to de-risk the sector for private capital to come in.
So, the big challenge with infrastructure is that private capital is not flowing into that space. Capital is shy and you have to make it comfortable. So, African governments need to understand that they should make investors comfortable so they can come into the sector and once the sector receives these investments and the critical mass is built, they can withdraw the credit enhancement that is required to attract the investment.
Which countries have successfully deployed this model you described?
We have seen it in several economies. For example, in Turkey, they had bankable power purchase agreements (PPAs) to mobilize and encourage investors. However, when they achieved the requisite investment critical mass, they stopped providing the PPAs. So, there are no PPAs in Turkey today, as the power market has stabilized. Businesses produce the power and the government buys as it needs.
The AfCFTA has come into force and a common market will be launched in July. What role can the AFC play to ensure that it achieves its goal?
We have always believed that infrastructure deficit is a hindrance to regional trade. Africa has the lowest level of regional trade in the world. Some say it is at 10 percent while others say it is 18 percent.
However, the best estimate we have seen is 20 percent which is still very low when compared to Europe where it is 70 percent and Asia at 60 percent. A major bottleneck is an infrastructure. For example, a company in Nigeria finds it difficult to export to Cameroon or Benin Republic because of poor infrastructure. What we are trying to do at AFC is to provide that infrastructure base that will allow for regional trade to take place.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
Group to benefit from efforts to give millions of Nigerians without bank accounts access to financial services.
A subsidiary of MTN Nigeria has been awarded a license by the country’s central bank that would allow it to provide financial services, the telecoms firm said on Monday.
Nigeria announced last year that it would allow telecom companies to provide banking services, aiming to give millions of Nigerians without bank accounts access to mobile money services, a policy that has been successful in Kenya.
SA’s MTN Group, which owns a majority stake in MTN Nigeria, said at the time it would apply for a mobile banking license in Nigeria and planned to launch the service in 2019. Since then, MTN Nigeria listed in Lagos in May in a 2-trillion naira ($5.6bn) debut, which turned it into the exchange’s second-largest stock by market value.
MTN Nigeria’s CEO, Ferdi Moolman, said on Monday its Yello Digital Financial Services (YDFS) unit had been granted a “full super-agent” license by the Central Bank of Nigeria.
“Through the network established by YDFS, MTN is in a position to broaden the availability of financial services for the underserved across the country. This marks a very important first step in leveraging our infrastructure to scale our fintech initiatives,” said Moolman.
“We have also applied for a payment service bank license, which will enable us in time to offer a broader and deeper range of financial services to those communities and we remain hopeful we will receive approval shortly,” he said. He did not give specifics.
MTN runs Nigeria’s biggest mobile phone network serving about 56-million people.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
When Byju Raveendran left classroom about seven years ago, he had no idea that he would soon be included in the list of India ’s billionaires. Now, that has happened and he has got a lot of credit for his persistence. Today, he has joined India’s billionaire list after his Think & Learn Pvt secured $150 million in funding earlier this month.
Here Is The Deal
The deal conferred a value of $5.7 billion on the company in which the founder owns more than 21%.
This brought the total valuation of the company developed by the former classroom teacher to almost $6 billion in about seven years.
This closing coincided with the announcement that the company’s Byju’s app — named after the founder — will team up with Walt Disney Co and take its service to American shores by early 2020.
In Byju’s latest funding round, the entrepreneur bought shares to maintain his equity level. Along with his wife and brother, the Raveendran clan now holds a total stake of about 35%.
Byju’s own fortunes have climbed alongside the market. Its revenues are expected to more than double to Rs 3,000 crore ($435 million) in the year ending March 2020, Raveendran said. That pace of growth has already caught the eye of some of the industry’s biggest investors from Naspers Ventures and Tencent Holdings Ltd. to Sequoia Capital and Facebook-founder Mark Zuckerberg and wife Priscilla Chan.
Byju’s Strategy
The Byju’s founder grew up in a village on India ’s southern coast where his parents were school-teachers. He was a reluctant pupil, playing hooky to frequent the football field, then learning on his own at home.
He became an engineer and then began helping friends crack entry exams to top Indian engineering and management schools.
The classes swelled until he finally began teaching thousands in sports stadiums, becoming a celebrity tutor who commuted between multiple cities during weekends.
Byju’s approach is simple — captivate kids by transforming the content to fit short attention spans. Raveendran has always harbored ambitions to crack English-speaking countries and has flown in YouTube stars to feature in his videos.
The 37-year-old entrepreneur — who has said he wants to do for Indian education what the Mouse House did for entertainment — is taking his biggest step yet geographically and creatively.
Online learning is booming, perhaps nowhere more so than on Byju’s home turf, where internet usage is exploding because of the ubiquity of cheap smartphones and cut-price wireless plans. India’s online learning market is expected to more than double to $5.7 billion by 2020, according to the government-backed India Brand Equity Foundation.
He set up Think & Learn in 2011, offering online lessons before launching his main app in 2015. The business has signed up more than 35 million of whom about 2.4 million pay an annual fee of Rs 10,000 to Rs 12,000, helping it became profitable in the year ending March 2019. That’s when Raveendran began courting long-term investors such as pension funds and sovereign wealth funds — his latest backer is the Qatar Investment Authority.
In his new app, Disney staples from The Lion King’s Simba to Frozen’s Anna teach math and English to students from grades one through three. The same characters star in animated videos, games, stories and interactive quizzes.
“Kids everywhere relate to Disney’s Simba or Moana, who grip kids’ attention before we take them through the loop of learning,” said Raveendran, also chief executive officer.
India is going through a dramatic period of wealth creation — and destruction. A new breed of self-made entrepreneurs is joining the ranks of the well-heeled, helping the country’s ultra-rich population grow at the world’s fastest pace. Raveendran, at least on paper, assumes his place among those parvenus thanks to his effort in internet education.
Education technology for kindergarten through 12th grade is one of the fastest-growing segments of the country’s internet market (India), said Anil Kumar, chief executive officer of Redseer Management Consulting Pvt.
“Indian education startups are well set to seize the global opportunity given that they already cater to a large English-speaking base and have created unique education content,” he said.
Those big-name backers buy Raveendran’s vision.
In Disney, he may have found a ready-made audience. All the lessons on the new service with Disney are set in the context of the entertainment giant’s classics and stay true to the narrative.
To explain temperature, the app sets up a scene where Frozen’s Elsa falls ill because she constantly plays with snow.
Anna gets out the thermometer to gauge her fever and a little story is then built around heat and cold. Or, to learn shapes, young learners dive into the story of Cars where they have to sort items like tires, traffic cones, and billboards into buckets to learn about round, triangular and rectangular shapes.
“We are customizing Disney Byju’s to the American and British school curriculum,” Raveendran said. “The characters have universal appeal.”
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
Is debt or equity fundraising smarter for startups?
There is more than one way to fund a new business venture and fuel its growth. For almost all, it is going to require bringing in outside money at some point. Even if that is only to multiply what is working or to create a source of emergency capital. The two primary options are to either leverage business debt financing or fundraise for equity investors.
Each method can carry its own pros and cons. It is vital for entrepreneurs not to blindly follow the herd just “because everyone else is doing it.” Discover which is best for you, at your stage in business, and stack the most advantages in your corner.
Once you have decided the course of action and have a lead investor covering at least 20% of your financing round you would typically also include in the pitch deck the form of financing in which you are raising the capital.
Debt Financing
We’re all familiar with debt. At some point, we’ve all probably at least had a student loan, signed up for a mobile phone contract, had a credit card, or an auto loan or lease. Debt means you are borrowing. Often, you will have to repay in monthly installments, over a fixed period of time, at a predetermined rate. Though this can vary depending on whether you are raising debt from investors, are using lines of credit or working capital loans, or even new hybrid convertible notes.
While non-recourse corporate financing is always preferred, some new entrepreneurs may also have to decide whether they will use their personal credit to get off the ground.
The Pros of Debt Financing
The biggest and most obvious advantage of using debt versus equity is control and ownership. With traditional types of debt financing, you are not giving up any controlling interests in your business. It’s all yours. You get to make all the decisions and keep all the profits. No one is going to kick you out of your own company.
Another big pro is that once you’ve paid back the debt your liability is over. With a fluid line of credit, you can repay and borrow just what you need at any time, and will never pay more interest than you need to. Looking at the big picture, using debt can ultimately be far cheaper.
One major benefit that is frequently overlooked is that business debt can also create more tax deductions. This may not have a big impact at the seed stage but can make a huge difference in net profits as you grow and yield positive revenues.
The Cons of Debt Financing
The most significant danger and disadvantage of using debt are that it requires repayment, no matter how well you are doing, or not. You might be burning cash for the first couple of years, with little in the way of net profits, yet still have to make monthly debt service payments. That can be a huge burden on a startup.
If entrepreneurs have not separated their personal and business credit, they may also find their entire life’s work and accomplishments are on the line if they default on the debt. Your home, cars, washing machine, and kids’ college fund can all become collateral damage.
It is also vital that borrowers understand that financing terms can change over time. Variable interest rates can dramatically change repayment terms later on. In the case of maturing balloon debt, as commercial mortgages, there is no guarantee of future availability of capital or terms when you may need to refinance. In the case of revolving credit lines, banks have a history of cutting them off, right when you need them most.
Too much debt can negatively impact profitability and valuation. Meaning, it can lead to inferior equity raising terms in the future or prevent it altogether.
Structures used by early-stage startups such are convertible notes, SAFEs, and KISS. These forms of debt eventually convert into equity on a subsequent financing round so it is a good way to bring on board people that are likely to partner with you in the long run with the business.
For later-stage companies, the route to follow is typically venturing debt.
Convertible Notes
Convertible notes are a debt instrument that also gives the investor stock options. This flexibility gives them security from the downside, and more potential upside if the start-up performs as expected. Theoretically, it can also be easier for some to justify making the loan, which has specific returns and maturity dates, versus the unknown.
Convertible notes are much faster than equity rounds. There are only two documents in place, which are the convertible note purchase agreement outlining the terms of the investment, and the promissory note explaining the conversion and the amount that the investor is investing.
With convertible notes, there are only three main ingredients the entrepreneur needs to look after.
The first ingredient is the interest that the entrepreneur is giving to the investor. This is interest to be accrued on a yearly basis on the investment amount that the investor puts into the company. The interest will continue to be applied until the company does another equity round when the debt will convert into equity with the amount plus the interest received.
The second ingredient is the discount on the valuation. This means that if your next qualifying round is at X amount of pre-money valuation, the investor will be converting his or her debt at a discount from the valuation that has been established in the next round by the lead investor.
The third ingredient to watch is the valuation cap. This means that regardless of the amount that is established on the valuation in the next round, the investor will never convert north of whatever valuation cap is agreed. This is a safety measure in the event that the valuation goes through the roof. It is a good way to protect your early investors and to reward them for taking the risk of investing in you at a very early stage.
Convertible notes are, in my mind, the fastest and cheapest way to fundraise. While equity rounds can be north of $20,000, convertible notes should not cost you more than $7,000.
One thing to keep a very close eye on is the maturity date. This is the date by which you agree to repay unless you have not done a qualifying round of financing in which the convertible notes are converted into equity. For this reason, make sure that the maturity date is a date that you feel confident about. You need to be convinced that you will be able to raise a qualified round of financing on or before that date in order to convert the notes into equity and avoid being in default. The last thing you want to happen is to be in default and to have to shut down your business because investors are demanding their money back.
Below is a good example of how convertible notes play out in real life.
SAFE
A newer instrument created by Y Combinator which has been adopted by many early-stage companies. The Simple Agreement for Future Equity (SAFE) aims to increase simplicity while preserving flexibility.
Y Combinator argues that these notes do not accrue interest, or have maturity dates, which makes them friendlier to entrepreneurs. That relieves a degree of extra burden which can be counterproductive to both parties.
A SAFE automatically converts to preferred stock at the next equity round of funding, or when there is an IPO.
Venture Debt
Venture debt is effectively borrowing to raise working capital and growth capital. This is a valuable source of funding that doesn’t mean giving up more ownership or diluting equity.
Venture debt financing differs from other sources of money in that it is normally provided by specialist entities and banks, such as Silicon Valley Bank, that offer their services to funded start-ups and growing businesses. They understand the dynamics of a start-up, and will often lend even though asset collateral may be weak.
These lenders offset risk by tying loans to accounts receivable, equipment, or rights to purchase equity in a default. A healthy start-up can find venture debt attractive in order to create more time between equity funding rounds so that more notable milestones can be achieved. These funds can also help speed through milestones to reach the IPO
Equity Financing
This type of funding exchanges incoming capital for ownership rights in your business. This may be in the form of close partnerships, or equity fundraising from angel investors, crowdfunding platforms, venture capital firms, and eventually the public in the form of an IPO.
There are no fixed repayments to be made. Instead, your equity investors receive a percentage of the profits, according to their stock. Though there can be hybrid agreements which incorporate royalties, and other benefits to early investors.
Typically the term sheet will be summarizing what are the terms of the equity round.
The Pros of Equity Financing
Equity fundraising has the potential to bring in far more cash than debt alone. It not only means the ability to fund launch and survive but to scale to full potential. Without equity fundraising growth can be far slower, if not seriously capped. These are some of the biggest concerns around the recent talk of Elon Musk trying to take Tesla private again.
Flexibility in distributions is the biggest draw to using equity. If you aren’t making a profit, then you don’t have any debt service. You don’t have that constant drain and stress. This can empower entrepreneurs to make far wiser decisions, than being forced to make rash ones which can cripple their startups, just to make a loan payment.
Far more important than the money is that bringing in equity partners means bringing in others with a vested interest in seeing you succeed. If they have influence, connections, and experience, that can make all the difference in becoming the next unicorn success story, versus languishing as a small business for decades.
Good equity partners can also make it much easier to secure more attractive debt later on.
The Cons of Equity Financing
The primary fear of giving up equity is loss of control. Partners can mean giving up decision making control. That can affect every micro-factor in your business. It can even lead to you being replaced by your partners if you don’t retain enough board seats and voting power.
A reduced ownership percentage can also not only mean that you have to split the profits but in some cases, some investors may be entitled to any positive returns before you can get a penny.
One of the lessors appreciated cons of equity fundraising is the time and effort it takes to soak up. Loan applications and underwriting may not be fun or fast. Though without the right connections and a powerful pitch deck, equity fundraising can be even more arduous and time-consuming. Don’t let it become a detour and distraction from getting right to the important business.
Conclusion
There are advantages and disadvantages of both debt and equity fundraising. Know the pros and cons before you start searching for the money. Understand which may be the most beneficial for your current stage of business and how it could help or hurt for future fundraising needs.
Furthermore, make sure that you have the right legal counsel representing you. Make sure they are corporate lawyers that have closed several transactions before you even consider engaging them.
Alejandro Cremades is a cofounder at Panthera Advisors which is a premier investment banking and financial consulting firm specializing in M&A, Capital Fundraising, Company Valuations, and Strategic Planning.
He previously cofounded Onevest/CoFoundersLab which is with 500,000+ registered.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
French incubator Schoolab has opened applications for its International Starter programme which gives entrepreneurs from all over the world the chance to relocate to Paris to invade European markets.
International Starter welcomes english speaking early stage entrepreneurs from all over the world to come to Paris and accelerate their business idea into reality.
We offer mentorship and tailored weekly workshops that help build your business and understanding of the ecosystem in France. Office hours are held with experts in the field to give you feedback on your business idea and answer some of the tougher questions that arise. We hold trainings on how to pitch your product to the public and our network of investors, information on the startup’s website reads.
The International Starter program is an incentive from President Macron to welcome African start-ups into France.
The International Starter incubation programme offers startups the chance to come to Paris and receive seven months of access to experts, mentors, and training to help them find the right product-market fit and build their businesses in France.
A four year French Tech Visa is given to participants for its 7-month accelerator program. Training is delivered via hands-on workshops and one-on-one sessions with experts and mentors, while startups will also gain access to Schoolab’s ecosystem of corporate clients, mentors, and alumni, and a co-working space in the center of Paris.
International Starter helps define and conquer problems that arise during the early stage entrepreneurial process. Schoolab will help startups target big corporations and investors through training and their network.
The Schoolab is a nurturing environment to grow and start your business in France.
The program helps entrepreneurs build cultural bridges to facilitate working in France and with multiple countries.
The Schoolab is located in the bubbling entrepreneurial ecosystem of Sentier in the 2nd arrondissement of Paris. Applications are open until August 31, with the programme running from September until March.
The programme boasts that it has accompanied 120+Entrepreneurs accelerated 60+ start-ups and have over 70% of supported startups still in business today.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
African startup founders are succeeding all over the world. Although in faraway Australia, Jamila Gordon’s Lumachain has just raised $3.5 million in a funding round led by the CSIRO-linked venture capital investor Main Sequence.
Lumachain’s founder Jamila Gordon previously held senior roles at Qantas and IBM after immigrating from her native Somalia in east Africa. The company is helping businesses in the food supply chain ensure they are ethically sourcing produce following the introduction of new laws against modern slavery in Australia.
Here Are What You Need To Know
When Jamila Gordon was a five-year-old in Somalia she was forced to work instead of receiving an education — fast forward several decades, and she has just raised $3.5 million to grow a business she hopes will help in the fight against modern slavery.
Gordon — a former chief information officer at Qantas and senior executive at IBM — helms Lumachain, a software-as-a-service company with a big social purpose.
The investment comes as businesses across all sectors in Australia are under pressure to ensure they are not profiting from forced labour or other forms of modern slavery.
Earlier in July, Australian retailers Cotton On, Target and Jeanswest announced they were investigating their own processes after an ABC Four Corners report found the companies were linked to factories in China where forced labour could be occurring.
Two brothers were jailed in the UK in January after being found guilty of breaching the country’s modern slavery laws for exploiting Polish workers in a warehouse owned by athletic wear retailer Sports Direct.
Companies in the food business might want to look to blockchain to avoid a similar fate.
What The Company Does
The company’s product uses blockchain technology to find and track items in the food supply chain which could be unethically sourced or the product of forced labour.
This function is not just good for society, but good for business, as it can help reduce waste, avoid recalls and — for companies with revenue of more than $100 million per year — ensure they stay compliant with the Modern Slavery Act introduced in Australia in 2018.
That might be part of the reason Gordon has been able to raise millions from private investors, including some heavy hitters like Main Sequence Ventures, which manages the CSIRO’s, Innovation Fund.
“The way goods move within the supply chain is still very basic, which means there’s still a lot of waste, inefficiency and risk,” Gordon said in a statement announcing the successful funding round.
“With growing demand for better quality food products and ethical and transparent business processes, plus a rising middle class across Asia, we see tremendous opportunity to improve the productivity, security and safety of what we eat.”
Main Sequence partner Mike Zimmerman said in the same statement that “absolute trust, verification, and efficiency” are needed in the global food supply chain and that Lumachain is “best positioned” to provide it to the industry.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
