As Central and Eastern Europe become increasingly popular for South Africa’s property sector due to subdued growth potential and earnings locally, should these funds not be investing closer to home?
This is the view of Kfir Rusin, the host of the most significant annual gathering of capital investors in African real estate, the 10th annual Africa Property Investment (API) Summit taking place on October 2 & 3 in Johannesburg, whose stakeholders have been more active in the first half 2019 than in the previous 24 months.
“In the first two quarters of 2019, we’ve tracked ten significant transactions in excess of more than a half a billion dollars across multiple jurisdictions and sectors by API Summit stakeholders,” says Rusin.
The growth and opportunity displayed by a diverse spread of International funds, DFIs, Banks, PE firms, institutional investors and others is evidence that despite apparent indifference to African opportunities in SA boardrooms, the continent’s real estate sector has evolved, and become increasingly more liquid and provides value in key nodes and sectors.
Some of the most high-profile deals include well known listed funds and global investors including Growthpoint Investec African Properties Investment Fund (GIAPF); Grit Real Estate Income Group; WeWork, Centum Real Estate, Nedbank; Standard Bank, the IFC and the UK’s CDC.
For investors and developers looking for data and partners experienced in African development or looking to sell prime assets, these are the men and women responsible for structuring and executing these mega deals who will be at this year’s conference, confirmed Rusin. These include GIAPF’s Managing Director Thomas Reilly; Grit’s CEO Bronwyn Corbett; multiple senior investment officers from the IFC; Standard Bank’s Head of Africa real estate, Niyi Adeleye, the CDC’s Illaria Benucci, Centum’s RE MD Samuel Kariuki and many more in attendance.
“The market has moved forward in the past six months, and we’re thrilled that so many major dealmakers will be at the API Summit to transact and share their experiences with our delegates,” he says.
These high-value transactions, while not a repudiation of the South African listed sector’s muted view of the African opportunity, do provide a compelling narrative that the continent’s property markets are investable, but require nuance and insights. It’s not simply a copy and pastes what’s worked here (SA) will work elsewhere says, Rusin.
According to noted real estate analyst Craig Smith of Anchor Stockbrokers, Africa’s top markets are “definitely a more attractive entry point than 18-24 months ago” but cautions that investors still need to exercise a “higher level of diligence” when investing.
And while deal many South African funds continue to look at Central and Eastern Europe for scale (sizeable transactions) and positive funding spreads, says Smith, the transaction spread by API Summit’s investors point to a market that is expanding, which is in line with his view that the “the opportunity set over the long term is immense.”
An analysis which may explain, the increased diversity and complexity in these deals, says Rusin. “We’re witnessing sophisticated deal structuring in Affordable Housing; Hospitality; Logistics; Office spaces and Mixed-use, across countries and regions.”
TOP TEN AFRICAN REAL ESTATE DEALS IN 2019
Growthpoint Investec African Property Fund to acquire malls in Ghana & Zambia Deal Size: Undisclosed
Centum RE & Nedbank ±$75M Debt Deal for their Two Rivers development project Deal Size: $75M
IFC invests in Hilton in Lusaka Protea Hotel (Zambia) Deal Size: $9M
African Logistics Properties (ALP) Signs Debt restructuring deal with Standard Bank Deal Size: $26.5M
Shelter Afrique in Affordable Housing Deal with Habitat International Deal Size: $100M
Grit buys Senegal Club Med Deal Size: $12.5M with development plans of $28.8M
CDC commits to mezzanine debt investment in Teyliom Hospitality Deal Size: $30.7M
WeWork opens its first of many African Office locations in Johannesburg Deal Size: Undisclosed
Actis & Shapoorji launch affordable housing Joint Venture in Kenya Deal Size: $120M
Westpark & Siemens to build sustainable industrial Park Deal Size: Undisclosed
Regarded among local and international decision-makers as Africa’s Property gathering, the API Summit is recognized as a platform for investing but is also vital in developing deeper layers of transparency for investors looking to meet and understand the continent’s divergent and complex markets to avoid previous mistakes committed by SA developers.
As Smith comments, “Africa’s markets are still relatively opaque, and it is vital that these markets continue with their efforts to improve transparency.” Adding that, “The experience of GIAPF is crucial in my view as this will provide evidence of performance to the SA market.”
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.
Looking for an entrepreneur with the Midas Touch for startups? Cameron Chell, the CEO of his newest startup ICOx Innovations, which is one of only a small handful of companies that have the ability to address the demand for both branded currency and blockchain platform integrations, can fit into that description.
Son of a former rancher dad, who was also the local butcher, and a mom who was the local florist in a very, very small Canadian town of Fort Macleod, southern Alberta, Canada, Cameron Chell told Alejandro Cramades that he had not known anything apart from entrepreneurship all his life.
‘‘I’ve just never known anything else,’’ he said. ‘‘Both my parents were entrepreneurs, and back in those days, they didn’t call them entrepreneurs. They were small business owners. They worked seven days a week. We went to church on Sundays, but they still worked. All three of those industries or those businesses, you had to work every day. I just don’t know anything else. So, I feel very blessed and lucky to have been brought up that way.’’
So Many Startups In His Portfolio
Cameron Chell said he had built and exited eight to nine startups.
‘‘You know,’’ he said. ‘‘I haven’t actually kept track, but it would be probably in the range of somewhere between eight and nine. And it depends on what you call an exit too. If you call them partial exits or exits whereby they’ve gone public and were part of the team, and have been bought two or three times before it’s gone public, I would say a dozen at least. But in terms of just pure, pure like, “We built it once and sold it to one buyer then it would be six, I believe if I’m not mistaken.’’
Cameron built his first tech company, FutureLink. In terms of what FutureLink did, its first version would be called a cloud computing application.
FutureLink went on to work with a number of companies from Oracle and Sun, to Microsoft, IBM, and Compaq. It achieved around a $3.2 billion dollar market cap, back when a billion dollars was worth its bargain.
‘‘FutureLink, I would love to say, was purely my idea,’’ he said. ‘‘It was actually my brother-in-law who came up with the notion of being able to run apps in server farms and have the app be accessed via the internet. This brand new thing called the internet. This is back in ’94, ’95 when we were starting to talk about it. In ’96 when we launched it.’’
Cameron Chell said they were basically trying to enhance both the upgrade experience for users on FutureLink so that people wouldn’t have to go into the computer land or the computer store at that time and buy 3 1/2″ decks and load them into a computer.
‘‘Well, why do you even have to do all that?’’ He said. ‘‘Why aren’t you just accessing the software that sits on the server somewhere as well, as mobile computing was really starting to make its mark? Like, why do I need to carry a laptop? Why don’t we login via what we were calling it at that time a thin client? We were working with a number of companies, everywhere from Oracle and Sun, and Microsoft, and IBM, and Compact because there was this computer utility thin client kind of revolution that was coming. We actually dubbed the industry application service provider industry.’’
At the same time, Chell was also running similar companies, such as ASP Industry Consortium, and was heavily committed to engineering. This could be so dizzying considering that he was trying to run successful companies and not just companies for companies’ sake. Chell said he was usually highly effective if he had a couple of things going on at the same time
‘‘We launched the ASP Industry Consortium, and that was really a self-serving mechanism to try to get adoption in the industry, but also to try to bring some standards to the space,’’ he said. ‘‘We had positioned FutureLink as one of the founding companies, and I was lucky enough to take on the vice chairman role there and really became the promoter of that. Again, We also started a company called Engyro which went through a name change. Eventually, that company was sold off to Microsoft separately. I think in true serial founder fashion, I tend to work better if I’ve got a couple of things going on at the same time.’’
However, his multitasking turned out to be successful because according to him, he was very lucky to work with very accomplished teams.
‘‘They let me lead some of the strategic direction, and then they handle a bunch of the coding, the product design. I like to be involved on the architect side of things. But once we get a layer deeper, I’m either out of time or out of skill,’’ he said.
Chell said for each of these initiatives or startups he had co-founders, but he was careful about the roles they occupied in his startups.
‘‘In every single case, I’ve had co-founders,’’ he said. ‘‘I would say in the early days, much to my own character defect, I would stand out in the front, and I would say, “I was the founder, and the reality is I wasn’t.” I wasn’t the only founder. I think I was a really an important part at times to make a number of these organizations work, but not everything has worked by any stretch of the imagination. There has always been, not just two co-founders, but really a co-founding team when we really get honest about that. The co-founders I choose tend to be either technical or operational. Previous to this, they were much more finance co-founders. My role tends to have skewed over the years to a much more finance role and a strategic direction role.
So, the co-founders that I mix with tend to be more technical, more marketing and a bit more operational.
The Outcome of Chell’s First Set of Startups
Although Chell also built Engyro in the early days, it ended up pivoting to a billing payment system in particular for the Dotnet World.
‘‘It went through a couple of iterations to get to that point, but that’s where it ended up,’’ he said. ‘‘It was two management teams after us. We were still involved strategically, but it was two management teams after our initial initiative that eventually got that sold off to Microsoft. I don’t recall the amount. It wasn’t a huge exit. I think it was probably an 18-million-dollar total sale. We weren’t large shareholders at that time.
‘‘FutureLink was very successful and quite fortunate for us,’’he said. ‘‘It ended up having about a 3.2-billion-dollar market cap. This is back when a billion dollars was not what a billion dollars is today. It seems like there are a lot of companies with a billion-dollar market evaluations. Not to take anything away from any of them, but it was a really big deal for us. So, we were a company that had Fortune 500 customers. Our customers were people like Microsoft, Great Plains, and Citrix.’’
Chell said all of these were happening at great revenue base.
‘‘Then there was this other thing happening that we were relatively kind of almost ignorant to which was called the Dotcom,’’ he said. ‘‘We caught a hold of it, and we just ended up being a startup that had some fundamentals behind it and with beneficiaries of a great market. We were building something that we were really passionate about.’’
What Happened to FutureLink, Cameron Chell’s First Company
To get the picture clearer, Chell said he hired a new chairman for FutureLink at the insistence of the financiers of the company.
‘‘He came out of the Telco industry,’’ Chell said. ‘‘He came in, and unbeknownst to me, when he took on the chairman role, he actually started acting like a proper chairman. I was quite insulted by that. He obviously didn’t understand who I was or how important I was as a 20-some-year-old founder and CEO of this company.’’
At that point, events took a new twist.
‘‘What ensued was me getting fired for being an arrogant little ****. It was absolutely one of the best things that could have happened to me, but I was still too stubborn to recognize what a great lesson and opportunity it was. I took my arrogance and channeled it completely inappropriately; sued the company, and started a competing company, and did all the absolute junior mistakes that one would expect from a complete *** ****, which is what I was at the time. The other thing that was not of benefit, though I thought it was great at the time, was because I was fired, a bunch of my stock nested; a bunch of my stock didn’t nest; some of it did, and I was liquid. I was liquid before the crash.’’
Chell said events were not entirely bad after that ordeal.
‘‘So, I was able to garner a little cash, not as much as one would think, but I was able to get a decent little nest egg out of it which gave me some firepower to start a bunch more companies and create more problems for myself ultimately,’’ he said. ‘‘But if it wasn’t for that, I’m sure I would have never sold the share and rode the thing right into the ground. So, ultimately, the company did fail in the Dotcom boom, though I can’t take credit for that. I’m not saying it would have succeeded if I had stayed at the helm, but it was a high-flying Dotcom. All that being said, I do want to point out that this was a company that had approximately, if I’m not mistaken, about 80 million dollars in revenue.’’
Here Is Why Chell Could Manage All of These Startups At A Time
Cameron Chell said he was probably all successful because of the lean startup approach he had adopted at his startups.
‘‘We were, without knowing it, very lean-centric,’’ he said. ‘‘And of course, it wasn’t called lean then. It was basically called survival back then, and it wasn’t really an accepted practice in terms of how you built startups. The accepted practice of the day was raise a bunch of money, build a whole bunch of infrastructure, and hope customers show up. We were never huge, huge capital raisers. We were builders first, which I think is often quite characteristic of founders.’’
Chell said his startups would usually end up getting a customer first, and then build the product around their requirement.
‘‘That’s just how we’ve built things always,’’ he said. ‘‘As Eric Ries and that whole lean startup moment really came in, it was really exciting and familiar to see. We didn’t even recognize that that’s what we were doing. So, we’d become pretty strong proponents of what that is and how that works. It was interesting to see somebody from outside our organization teaching us what we were already doing.’’
‘‘I realized that I wasn’t in control of things’’
For Cameron Chell, the bombing of the World Trade Center on September 11, 2001, changed the way he previously viewed life entirely.
‘‘I went on and kept building a bunch more companies. Some were moderately successful. Some were complete disasters,’’ he said. ‘‘But in 2001, I was at the base of the World Trade Center on 9/11, and, my life, whether I knew it or not at the time, was headed for a major catastrophe because I was just running completely out of control, and just totally self-centered. By the end of the day on 9/11, I was in complete disarray wondering why I was alive, and other people weren’t. It was probably the first chunk of my self-centeredness being at least somewhat corrected. I realized that I wasn’t in control of things.’’
Chell’s life took a new downward turn afterward. He found himself suddenly homeless.
‘‘So, all this great value and brilliance that I thought I was creating, I really started to question it,’’ he said. ‘‘Within a very short time, I was drinking heavily, and within a very short time, I was abusing drugs. Within about two years, I was completely bankrupt and desolate. Within three years, I was living on the street, and I spent the next seven years after that working to get clean and spent a lot of time in the street, and rehabs, and such to get my life back on track, which by the grace of God and a lot of great people, I’ve now been clean for over 10 years.’’
Chell was literally watching his life slip out of his hands. At a time, he would make up his mind to get back on track, but that would not hold.
‘‘I wish that I could tell you that moment,’’ he said. ‘‘That moment happened two dozen times for me, where I said, “This is it. I’m done. I’m going to get better. I’m going to fix it.” Even two dozen times is a joke. I’d wake up every morning or be awake for three days straight, and every 10 minutes I’d be like, “Okay. That’s it. I’m done. I’m done.” An hour later I’m off running again, just doing whatever I could to get my fix. So, I would love to say it was willpower and I decided I was going to do it, and there was this great burning bush or something, and it wasn’t. What happened was a lucky situation. It didn’t seem lucky at the time where I was in a lot of danger. I was being pursued by a gang. I lived on the street, and I was getting beat up by them.’’
Chell said he was in the streets for a consistent four years that was on and off.
‘‘Like in and out,’’ he said. ‘‘Actually, my total round was about a decade, just a little bit over a decade, about 12 years from when I really slipped deeply until I finally got myself cleaned. I didn’t get myself cleaned up, but I was finally able to get cleaned up, which is quite a short timeframe for somebody that goes really deep and lives on the street because most people don’t come back from the street. But there were four years in there where I was just completely gone, un-findable.’’
Long story short, Chell had to get through a few days without DOC, the drug of his choice.
‘‘I ended up getting through 10 days without it while getting away from this gang,’’ he said. ‘‘ I just didn’t really have a choice. I hit rock bottom. That’s the bottom line. I didn’t have a choice to use it again at that time because I decided I did want to live. I didn’t know that I wanted to live, but I did want to live. At the end of 10 days clean, something just started to click. I had had 10 days clean before, but not having gone through what I had gone through in the previous 10 days. I knew that if I ever touched anything again, that I wouldn’t come back and I’d be done. I could just see so many people that were really sincerely and authentically trying to help me, and I was just disrespecting them at every moment.’’
However, Chell said since recovery, there were many tempting times over the weeks and the months and years ensuing where if it just weren’t for some pure luck he would have relapsed to his former position.
‘‘Founders can be incredibly impulsive, compulsive, and generally always determined people,’’ he said. ‘‘So, when there’s something that has worked before to solve a problem, like using a drug or something, it’s tough to get away from that. I see a lot of founders. I get to coach and mentor some of them, and I see the intensity that they approach things with. You generally have to be on some level incredibly intense to be able to do something like this or to take the risks or be willing to subject yourself to the things that you go through. It puts you in a lot of risky situations, but also, you’re generally kind of predetermined to be a certain type of individual that could be subject to falling into these traps. I guess my point is, there was no burning bush, and it was a lot of luck and a lot of great people that helped me get through that.’’
Cameron Chell said at that point when he was in the street, he had given up on himself.
‘‘I had not only given up on myself, I had actually believed that everybody, the entire world, my family, everybody was better off with me,’’ he said. ‘‘Like you justify it this way, that it was better off with me being on the street because I was so worthless. Homelessness itself is its own form of drug, and it is its own form of mental illness that draws you into it where you don’t want to leave. You don’t want to leave. In fact, I would say today when I’m hungry or lonely or tired or angry, just haven’t been looking after myself, the odd crazy thought of being homeless would slip into my head and be more attractive than the odd crazy thought of using drugs. It’s a very odd mindset that slips into that, but worthlessness is at the forefront in it.’’
A Ton of Lessons From That Experience
Chell said he learned many lessons from that experience.
‘‘There are so many great lessons that I’ve been given, but the one that I hang onto the most every day now is that I stay very, very present,’’ he said. ‘‘So, I only do the next thing in front of me. It’s almost counter-intuitive because we’re taught to be visionaries, we’re taught to be what’s the next big thing. We have to see around corners and anticipate the next move. If you’re not a great Chess player, you’re not a great CEO, and if you’re not all those things. But, you know, the reality is if you just don’t get done the next most important thing, none of it matters.’’
Chell said ninety percent, in his opinion, of founders today who don’t succeed generally do it not because they haven’t got a great idea.
‘‘There are amazing, great ideas out there,’’ he said. ‘‘I sit in Angel Forums and I listen to pitches, and the ideas and the thinking is incredible. But 99% of the time, the reason that you, whether it’s recognized or not, the reason that people don’t invest in those founders is because they don’t believe they can execute the next step. It’s really all just about what is the next most important thing to do.’’
Chell goes on further to say that when he gets up in the morning, his mind is already racing.
‘‘If the first thing I don’t do is meditate…I worry about the next 15 minutes getting to my workout, getting back on time, getting my kids’ breakfast ready. If I don’t take that level of pragmatic approach as a founder, I’m also not going to run my business well. So, those are the things that I’ve seen investors really focus on whether they recognize it or not. I’ve also found that the most successful founders have a high level of anxiety. One of the greatest ways for them to elevate that anxiety is to know that everything will be okay if you just get the next thing done.’’
Now 42 years old, and things are starting to turnaround, Chell is now a father and in a loving relationship. But he has also been diagnosed with lymphoma cancer.
‘‘It’s just another one of those great lessons where you realize you’re not in control. So, I didn’t recognize it, but now I had some clean time, I had somebody to love me, I had a family that was growing, and I thought, “Hey, I’ve done everything right. I deserve to be in this spot that I was in because I’ve done all the hard work,” he said. ‘‘Again, entitlement, a character defect of mine, just slapped me right in the face and said, “You’re not in control.” I was diagnosed with lymphoma cancer. Part of my first reaction was like, “What! I’ve done everything I was supposed to do. I’ve done everything right. Why would this happen?” So, it really, again, it was a blessing because it really took the need for me to let go of ego and start to understand, where is my self-centeredness in this, and understanding this isn’t all about me. I’m not a victim here.’’
‘‘And what are the most important things that I need to take care of in terms of my family, and the people that I was working with, and the investors that had put money into projects that I was building? And here I was diagnosed with lymphoma cancer.
‘‘When I got focused on those things rather than, oh, my gosh. What about me? Why am I not getting what “I deserve?” Things turned around. I was very, very lucky that physically and health-wise, I was able to get on the other side of it and I’ve been clean of that now for eight years, or lymphoma cancer-free for eight years. I promise you: I totally believe that if I would have stayed in a state of victimhood or entitlement, I don’t know if I would have beaten it.’’
It was a grace that I’m here, but it sure changed that whole experience. But even if I hadn’t (because I was able to get to a spot of not having that entitlement) even if I hadn’t been able to beat it, I believe that both my family and my co-workers and our investors would have been fine because of the steps we would have taken to help ensure that everything was fine. Again, it was just about the next thing. We won’t worry about 20 years down the road. We’re just worrying about what’s the next most important thing to get done.
Back To Work
Cameron Chell had since moved on. He has spent much of his time building series of other startups.
‘‘Again, I didn’t really know much else, so I had already launched a couple of companies,’’ he said. ‘‘The first one was a company called UrtheCast. Our idea was to build a competitor to Google Earth by putting live video cameras in space. In fact, we were going to put them on the International Space Station.So, we were successful in doing this. We raised a very small amount of capital to start. We started proving up the idea. We got a couple of customers onboard that liked the idea, and they funded some of the product development, and then eventually, we were able to raise bigger and bigger capital and bring on a more and more senior management team. Today, those cameras are on the International Space Station, and they provide live video feeds of earth. The primary customers are B2B, not B2C as we had originally contemplated.
To date, at least to my knowledge, they are still the only live video from space. All other video in space is all based on still pictures being taken. I mean, they’re fast still pictures, but none-the-less, it’s not video. Since then, I think we’ve got 22 companies in our portfolio to date.
UrtheCast Has Since Gone Public And Done Its IPO
Chell said UrtheCast has since gone public and has secured a series of funding for the business.
‘‘The total capital was 280 million dollars at the point that we were no longer part of the active management of the business,’’ he said. ‘‘They’ve raised capital since. Even 280 million dollars for a space company is a ridiculously small amount of money. We were building the cameras for literally 5 million dollars a piece. They were literally Canon SLR chips that were the sensors being used. Now, the housings were very expensive to pack that equipment, but it was all part of this new initiative called Small Space at the time which was all about being able to use commercially-available products in the space industry. We were also beneficiaries of space being pretty hot at the time with the XPRIZE going forward and such. Yeah, we just grabbed onto what we could and built what we did.’’
UrtheCast Is The First Portfolio Company of Business Instincts Group Formed By Chell
Business Instincts Group is a venture creation lab.
‘‘We come up with ideas internally,’’ Chell said. ‘‘We bring ideas in-house and incubate them. They are generally very early stage either ideas or businesses that we feel have a significant opportunity to scale. What we have is a proprietary process called The Rip Kit which is responsibilities in perspective, which is a system by which companies can build startups from idea right through commercialization.’’
Chell said the primary idea behind it is that rather than setting KPIs or Key Performance Indicators, what it is designed to do is to set responsibilities and perspective which basically involve the entire team setting the most important objectives on a monthly, quarterly, and yearly basis. The team then check in on those objectives on a weekly basis.
‘‘There’s a software system that helps drive the whole process,’’ Chell noted. ‘‘It’s one level above project management. But what it does do is it really ensures that everybody is on the same strategic page, and as such, it allows them or empowers them to make decisions because everybody knows they’re on the same page.
The other great advantage of the system and the software is that it provides full transparency and a dashboard to the investors. So, as we go out and we raise capital for our projects or we have our senior management teams raising capital for our projects. One of the things that they can show to investors is everything that is happening on a weekly basis. They can see exactly what the strategic initiatives are, who is in charge of them. Are they behind, on track, ahead, and by what percentage?
Chell said Business Instincts Group has crucially been driven by Big Thinking Process.
‘‘Big Thinking is, it’s anchored in the first question we call: What if?’’ He said. ‘‘So, imagine if Google Earth was live. Like, just what if it was? We know all the reasons that it can’t be, and it’s impossible. But, if it could, what would it look like if you could? Then we go through that question, and we end up coming up with the really cool product. This is how we started UrtheCast.
We come up with a really cool product of what it would be like to have a Google Earth live rather than three-year-old satellite data. Then we talk, well, we know it’s impossible to build this, but what if we could build it? What would that look like? After you go through like 7 to 15 what-ifs on a project, you end up getting it boiled down to natural potential or possibility to build a project that was thought impossible, literally five or six hours previous to that.
That’s our Big Thinking Process. So, we love big ideas, and we love all that kind of stuff, but we really like to anchor it in a pragmatic approach to like.’’
Cameron Chell’s success has also been with Slyce, a visual search engine startup.
‘‘So, obviously, search is a massive industry and a cornerstone on so many commercial aspects of what happens on the internet and e-commerce in general,’’ he said. ‘‘There was a lot of focus being put on audio search, so we see things like Siri, and Alexa, and so forth. Let’s just be a bit counterintuitive here and go down the path of visual search. We had done quite a bit of stuff in visual search before, not specifically for what Slyce was going to try to accomplish, but in particular we had done some machine-vision work way back in the 90s, and then at UrtheCast we had recognized the power of some visual recognition when identifying objects on earth using cameras from the space station.
So, the general idea was why don’t you — and this isn’t a novel idea. Lots of people have had it. Why can’t you just take a picture of something? Let’s say it’s an office chair, and you are in the Office Depot or Staples app, and you take a picture of that, and boom, it finds it in their inventory. You can buy it instantly. So, like no click at buying. Rather than one-click purchasing which Amazon built an empire on, what if you could do it on no-click buying. So, we envision that up in the little search bar there would be a keyboard. There would be a microphone, and there would be a camera. That’s what we wanted to create.’’
Cameron Chell has also gone ahead to launch other successful businesses such as ICOxinnovations.com, a publicly-traded company that creates blockchain economies and corporate currencies in partnership with established brands
Advice for Business Owners Starting Out
‘‘ I’ll tell you what I tell my son,’’ he said. ‘‘I get up every morning and meditate, and I just focus on one think big, but act small. Act small in terms of what you need to do next, and act small in terms of where your ego needs to be. That’s really four things I just told you there. You do those and everything, I believe, will work out right. Don’t get too far in front of yourself. Think big, but just learn how to act small, and I guess that’s the advice. Think big, act small. Some of those small acts are just doing what’s next and having a little meditation sometime throughout the day.’’
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.
Every day, Egypt’s entrepreneurs wake up to pursue their next rounds of investments, expanding across borders, entering into strategic partnerships, without looking back. From Swvl to Colnn to Fawri, the Egyptian startup ecosystem is always in the news. But behind all these struggles and hustles, there are stories, the reasons that have made the country’s startup ecosystem one of the most successful in Africa.
In fact, Egypt has over the past few years scaled up its entrepreneurial activity, becoming the fastest-growing startup ecosystem in the Middle East and North Africa (Mena) region according to a report by Magnitt. Below are some of the reasons why Egypt’s startup owners’ struggles are continually on the rise.
Inspired by the falling inflation rate and an economy that is on its way to recovery, more people are gaining the confidence to launch their own business.
“We have seen a lot of change in the startup ecosystem in Egypt in the last couple of years. We see it in the number of our applications; it is doubling. Also, in the quality of the entrepreneurs who are applying to join the programme,” says Marie Therese, managing partner at accelerator Flat6Labs Egypt.
With a population of more than 100 million, Egypt’s market has the potential to be one of the most lucrative and it is attracting the attention of not just startups from the wider region, but also investors.
“Over the past three years we have been seeing more access to finance and more interest from global investors to invest in the ecosystem, adding to that the governmental initiatives supporting starts and SMEs,” says Mohamed Hamza, associate director at AUC Venture Lab. “We have been seeing an increased awareness about entrepreneurship through the work of various stakeholders, appearing on TV and having dedicated programmes directing attention towards the topic as well as the introduction of entrepreneurship education as a requirement in a number of public universities.”
Presence of Venture Capital Firms, Accelerators and Incubators in Egypt
There is also the presence of an appreciable number of venture capital (VC) firms, accelerators, and incubators in Egypt. These startup funders have been on the increase, and they are continually showing interest in entrepreneurship in Egypt.
As a matter of fact, a report by the Global Entrepreneurship Monitor (GEM), launched by The American University in Cairo School of Business in 2018, noted that 82 percent of Egyptians perceive successful entrepreneurs as having high social status and almost 76 percent of Egyptians, mostly youth, perceive entrepreneurship as a good career choice, compared to a global average of 61.6 percent. This is even brightened by 55.5 percent other Egyptian non-entrepreneurs surveyed who expressed their interest in starting their own business, a percentage that is double the global average.
“There is a shift in the mindset. Young people are more eager now to start their own projects. Also, there are so many entities that provide help and support to startups. The more young people know about these entities and the fact that there is so much support, the more they are encouraged to start their own projects,” says Therese.
Lack of Interesting Jobs For Young People
Again, Egypt’s younger population may be showing increasing interest in entrepreneurship because young people are just getting fed with uninteresting jobs.
One of the biggest drivers for the rise in entrepreneurship in Egypt is the lack of “interesting jobs for young people”, notes Therese.
This is seen in the statistics. Egypt’s overall unemployment rate currently stands at around 8 percent according to CAMPAS, Egypt’s statistics agency, however, its youth unemployment rate as of 2018 was more than 32 percent according to the World Bank.
According to the GEM report cited above, opportunity-driven entrepreneurship has been decreasing at the expense of necessity- driven entrepreneurship that is driven by the lack of other work alternatives, increasing from 31.1 percent in 2016 to 42.7 percent in 2017, compared to a global average of 22.2 percent.
You would have no choice here but to cite Swvl as an example of an Egyptian startup trying to confront a global problem from a local perspective. Take for instance the historic city of Cairo, Egypt’s capital, a city noted with a dense population of 30 million, its crumbling infrastructure and other social and infrastructural problems it is facing. Startups within the city have taken note of these problems and have hopped in and have accepted Cairo as fertile ground for solving problems that many cities in emerging markets around the world are experiencing.
Take a look at Egypt’s transport sector. Cairo has excelled here by solving the transportation problem for overcrowded cities with poor public transportation systems. The city has seen startups that have provided the solutions. Swvl is one such example. Swvl is an application for booking buses. The startup recently closed a $42 million investment round, marking the biggest VC investment deal in the country and the highest in Mena in the second quarter of this year.
“Startups can offer many innovative solutions for the big issues. We cannot say they are solving the whole thing at one time, but at least they are offering a know-how and a new way of dealing with things just like what happened with the transportation market starting with Uber then the rise of Careem then Swvl which is much more Egyptian and much more related to our situation and streets,” says Ahmed Adel, business mentor at Fekretak Sherketak.
Swvl understood the Egyptian market and this enabled it to become Egypt’s transport market leader. By setting the pace, the startup highlighted the opportunities in Egypt’s buses sector with both Uber and Careem launching their own service.
“We can even see that the public transportation sector started to use mobile applications such as Mwasalat Misr which I think will be a good experiment that will be generalised soon,” says Adel.
However, notwithstanding the innovation and enthusiasm in Egypt’s startup ecosystem, there remains plenty of challenges that hinder the growth of startups in the country, many of which end up failing. Egypt has the highest rate of business discontinuation among the 49 countries studied in the GEM report with a rate of 10.2 percent in 2017, a significant increase from 2.7 percent in 2010.
The report states that this high discontinuation rate is as a result of the challenging business environment reflected mainly in the lack of profitability for businesses and the difficulties in accessing capital.
“Investors need to understand that the nature of investing in startups is different,” says Mohamed Khedr, managing partner at Endure Capital and founder of Fatakat, an online network aimed at Arab women. “Investors are used to dividends and thus find it difficult to supply startups with money for seven or 10 years and wait for its exit until they can have their money.”
Khedr says many investors “do not understand that they can have a maximum of 30 percent stake because the founders still have upcoming investment rounds and stake to share and do not want to end up with 3 or 4 percent share”.
Other investors in Egypt’s startup ecosystem also tend to be overbearing and, most times seem to get too involved in the day to day running of the startups. This perhaps leads to the ultimate disintegration of the startups before they even begin to gain traction.
The Regulatory Environment Is Also A Hindrance
Egypt’s regulatory environment is also bad for most startups. This is worse when it comes to investing in startups.
“There needs to be new laws that are introduced specifically for startups such as shareholders’ agreement as well as regulations that ease taxation and financial restrictions and facilitate procedures of registering startups,” says Khedr.
Lack of Experience
Egypt’s startup owners may not be getting their acts together after all, and this may be a crucial reason why most startups in the country fail. However, this is not an Egypt factor alone. Generally, Egyptian entrepreneurs have a low fear of failure compared to the global average in GEM.
Nevertheless, despite these positive attitudes, most entrepreneurs in Egypt insist that running personal businesses or startups are still a tough and stressful job, especially with extended working hours, high risk and high level of uncertainty. About nine out of 10 startups in MENA fail. Few are however aware of the failure rate. This is because much of the media focus on the success stories, investment rounds, and acquisitions.
“One of the biggest reasons why startups fail is experience. You can learn how to be an entrepreneur but not open your own business,” says Adel who founded a startup when he was still a university student and had to shut it down a year later. “You can be an intraprenuer. You can join a startup to learn more. I am not encouraging students to open their startups without experience. If you have a good idea that you think will change the market, just get some experience in your team.”
Lessons In Failure
Yet, there are lessons to be learned in failure. Many entrepreneurs in Egypt who have failed to learn from their mistakes. Most of them strive to start new businesses. Wasla Browser is a notable example. The Wasla Browser is the third venture for Wasla Browser’s team members after their initial startups failed. While university graduates continue to found their own businesses in the hope of becoming their own boss and creating employment opportunities for themselves, it is the ones who are on their second or third ventures that are likely to see success and it is these founders who are contributing to the most value to Egypt’s startup ecosystem.
“The youngest people think that they will be their own decision makers, and no one will tell them what to do and so on which is actually not true. An entrepreneur is bossed by the market itself, the customers and investors,” says Adel.
Contributions from Yasmeen Nabil, a researcher with Wamda, a platform of integrated programs that aims to accelerate entrepreneurship ecosystems throughout the MENA region.
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.
Less than a year after its first round of venture funding, the Canadian Clearbanc, a startup which provides funding for other startups to spend on marketing and customer acquisition, has secured $300 million Series B financing round on Wednesday. This is record-breaking for a startup that just raised $70 million in December 2018.
The round was led by Highland Capital and existing investors Inovia and Emergence Capital.
Canada-based Clearbanc, which was pitched as an alternative to traditional venture capital funding, last raised $70 million in December.
See the pitch deck the Clearbanc team used to get traditional venture investors on board with its unconventional sales pitch.
Clearbanc is betting that venture capital is the next in line for disruption, and they just raised $300 million in venture funding to prove it.
The Canadian startup, which provides funding for other startups to spend on marketing and customer acquisition, announced Wednesday a $300 million Series B financing round led by Highland Capital, Inovia, and Emergence Capital. The financing portion of the round was led by Arcadia Funds with participation from Upper90 Ventures.
Clearbanc pitches itself as an alternative to venture capital for startups spending heavily on things like Facebook and Google ads, and this is its second venture funding round in less than a year. According to Pitchbook data, the company closed a $70 million Series A in December.
Clearbanc claims to automate the pitching process using a machine learning model that can supply companies with anywhere from $10,000 to $10 million in funding instead of giving up a portion of the company to an investor just to turn around and spend the funds on ads. This model works particularly well for e-commerce startups that need to get in front of new customers to grow, according to Gary Vaynerchuk, CEO of VaynerMedia and Clearbanc investor.
So how was the Clearbanc team able to sell traditional venture investors on a model that is in direct competition with their own? Here’s the pitch deck that convinced investors that disruption could be worth $300 million.
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.
Andrew Rinaldi, the co-founder of the all-in-one, SaaS-delivered cybersecurity platform Defendify, knows all too well what it takes to obtain startup funding. Rinaldi and Defendify recently secured $1.6 million in pre-seed funding to help get their business up and running. Defendify secured the money from private investors with participation from the Maine Technology Institute and early-stage cybersecurity industry investor 3dot6 Ventures. In this interview with Chad Brooks, he shares his deep wealth of experience.
Q: How do you know when it is time to raise funds?
A: Really, it’s just math. Through business planning — which, yes, we all have to do — you figure out what you’ll need to get started and grow. And with that comes identifying the funding required to make that a reality.
If you don’t have the requisite funding readily available, it’s time to look to other people. As things progress, your position will absolutely change over and over, but creating some early projections and forecasting — even if rough — paints the picture.
Q: How do you know you are ready for an investor, versus just asking family and friends for money?
A: You’ll need to extend the conversation to new resources just as soon as you’ve exhausted friends’ and family dollars, or if they’re simply aren’t any friends and family options for you.
The other primary driver for going beyond friends and family is for access to new opportunities and resources. Some call it “smart money,” where whoever is helping fund your cause also brings their expertise, networks and often vast resources to the table. That, together with the short- and long-term financial impact, can be a major catalyst for your business and is the perfect time to think beyond friends and family. [Are you actively seeking financing options for your business? Check out our reviews and best picks of business loans.]
How to find the right investor for your startup
Q: How do you find potential investors?
A: It’s all about networking. Start with family and friends, then move to your professional network. Who do they know that might be interested? … Through the course of that outreach and sharing your story over and over, you are then introduced to more and more people beyond your network, who I call your extended network, and eventually, find prospective investors that might align. Yes, you can conduct cold outreach as well, and we all do, but it’s the power of your network — and extended network — that nets you the most effective relationships.Q: How do you find potential investors?
Q: How do you know if an investor is right for you and your business?
A: There has to be alignment, and I would suggest that starts with your core values. It’s not all that different than how you might seek employees or partners that believe in you and your vision. They can’t just have a basic business or financial goals — they have to have a mindset and operate in a way that works for you and with you.
I’ll also say it’s really important to pay attention to your gut. Sometimes you just know innately if an investor is a good fit or not, and that absolutely should be taken into consideration.
Q: What should your proposal to an investor include?
A: I would say to look at a proposal to an investor more like you would a marriage than a business. Yes, you have to go through the practical motions and economics that make for a good fit, but in the end, it’s mostly about having a healthy, mutually beneficial relationship that can stand the test of time. If you can’t overcome adversity and subjectivity and ride through the trials and tribulations together, you won’t be successful — no matter how good an idea or product you might have.
Q: Once you secure an investment, what role does the investor play in your business?
A: It all depends on who the investor is. Some will be totally hands-off and just check in casually, perhaps no more than chatting at the backyard barbecue or over a coffee or beer. That’s commonly where family and friends fall. Others will want to dig in more regularly or even participate as operators, not only to understand how the business is progressing but to see where they can help.
The good news is, everyone with a vested interest genuinely wants to help. Building a business from the ground up requires all the help you can get. It may come in many different forms — financial, networking opportunities, new customers and partnerships, constructive criticism, or candid advice. Whatever the case, it’s always worth listening (and remember, you don’t have to do everything everyone asks of you). These are people who want you to succeed, believe in you, and care about you. One thing is for sure — you’re in it together.
Q: What are the benefits of getting funds from an investor versus taking out a traditional business loan?
A: Traditional business loans aren’t usually an option for early-stage startups. While some lenders promote working with startups, it’s rare they actually do. I recommend exploring nontraditional loan opportunities.
For example, we have an amazing relationship with the Maine Technology Institute, which fuels innovation by providing technology development loans with preferable terms to early-stage companies. Their goal isn’t to run up the bill with interest or lock you in for the day you go public, [but] rather see you through to success and generate local jobs and economic impact. Those kinds of opportunities are well worth pursuing and often more fruitful.
The primary benefit of funds from investors is availability. Investors are willing to bet on you, especially early on, in ways the banks or lenders will not and may not for many years to come. And once convinced to invest, they can move quickly to infuse capital into the business, which can be a huge benefit.
That includes the potential for follow-on funding when you need additional dollars. Now, that doesn’t mean investor funds are simply readily available out there in the world. Actually, it’s just the opposite. Raising funds from investors is a full-time job on top of your full-time job of building and running the business.
Rapid-fire questions
Q: What piece of technology could you not live without?
A: The most important thing about running and scaling a healthy business is effective communication. Slack is a great tool for everything from regular check-ins to timely company updates and even sharing a funny story or joke. Slack doesn’t replace in-person communication or meetings — nothing can — but it can help promote ongoing chatter, transparency, and visibility while minimizing interruptions and interference.
Q: What is the best piece of career advice you have ever been given?
A: Many years ago, when I was building my first business, one of my longtime mentors introduced me to the notion that I should stop working “in the business” and start working “on the business.” I hadn’t ever thought of things that way, but once I did, it changed my whole perspective.
Now it seems so obvious; however, the truth is we all get caught up “in the business” to varying degrees. This advice not only resonated when I first heard it but is something I come back to each and every day.
Q: What’s the best book or blog you’ve read this year?
A: I really enjoyed One Bullet Away by Nathaniel Fick (who happens to also now be a leading cybersecurity executive). On one hand, [it’s] an intense and detailed journey taking you through the harsh realities of war and military life, [and] at the same time a tremendous and thoughtful story about leadership and accountability.
Q: What’s the biggest risk you’ve taken professionally? Did it pay off?
A: Moving to Portland, Maine. Building my past business in Boston for many years, my wife and I would occasionally escape the city for weekend trips north. I’ve had the good fortune of traveling extensively in my life and couldn’t believe all that Portland and Maine had to offer, and just a couple of hours away. So, when I looked beyond the amazing restaurants, fascinating culture, great schools and outdoor life, I was pleasantly surprised to discover a sprouting startup, tech and creative community.
It’s no secret Maine hasn’t historically been considered a center for business impact. So, betting on Portland was a huge risk. But it’s paid off big. You’d be absolutely amazed at the people and resources that are around. Turns out it’s not all lobsters and potatoes.
There are a ton of very smart and uber-successful people in Maine, including a rapid influx of talent migrating away from the ever-increasing cost of living in big cities like Boston and New York. If anyone out there is considering taking the same risk and seeing how Maine can pay off, I’m more than happy to share the secret.
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.
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.
For those who have used Facebook, Twitter, Instagram or any other social network in the past few days, there are huge chances that they might have come across their friends, family members, acquaintances and countless others who have suddenly and mysteriously become grandparents with wrinkles and greyed hair or who have simply gotten younger, grown a beard or changed their appearance in any other more or less obvious way. The magic behind this sudden alteration in looks is FaceApp, a mobile app that uses machine learning (AI) to manipulate faces on digital photographs. FaceApp has gone viral after a couple of celebrities and influencers posted impressively accurate images of their future selves on social media. But behind all the frenzy is CEO Yaroslav Goncharov who had no idea that FaceApp’s virality would be so overwhelming for him.
FaceApp
“We have success, but very unusual success,” says Goncharov, who owns 100% of the business.
Here Is How It Happened
As the following chart below shows, FaceApp had a moment in the limelight before, but the 2017 hype around the app was much smaller than the current craze.
According to estimates from Priori Data, the app clocked nearly 30 million downloads in July, catapulting it to the top of the app store charts on both Android and iOS.
In fact, currently, FaceApp has been downloaded (although not active users) revealed on Google Play, in excess of 100 million.
Yaroslav Goncharov Had Been Digging and Tilling At FaceApp Since 2016
Russian Goncharov’s success is a case of building momentum and mastering the art and game of his industry. He has worked on Windows Mobile for Microsoft and co-founded a company which was sold to Russia’s Google, Yandex, in a reported $38 million deal that made him wealthy.
“I worked at Microsoft in Redmond, U.S., and in the evenings I wrote [code for] a bot with whom one could play poker. The neural network was only a small, evaluative part of this bot — at the time, there were no ways to create a solution entirely based on the neural network,” Goncharov said in a 2017 interview with the Russian Afisha Daily
Upon leaving Yandex in 2013, he invested his time and resources on creating his own products. His first output is a hotel Wi-Fi testing tool that garnered some success. Goncharov, however, desired to create a product from face-generating algorithms, he starting working on FaceApp in 2016. FaceApp launched in 2017, still in what Goncharov describes as a beta version. Even in its basic form, it went viral for the first time after a “hotness” filter made people prettier.
“FaceApp was born at the junction of two important trends. The first is the ever-growing value of photos and videos. There is an opinion that stories from Snapchat, Instagram and their analogs will soon kill news feeds like Twitter. Facebook is already moving in that direction,” Goncharov told Afisha two years ago.
With millions of users in love with the app, Goncharov was quick to draft a business plan. He envisioned a reality where people would pay for an automated photo editor, so he added a paid-for subscription offer that would remove the FaceApp watermark and irritating ads, as well as add some premium features. Goncharov’s hope was that FaceApp would replace PhotoShop editors with AI.
“The second trend is neural networks. That’s what they call the simplified analog of the human brain implemented in computer code. To create it, they build a huge network of software simulations of neurons and synapses capable of analyzing and storing information. Such technologies underlie machine learning, artificial intelligence, cybernetics, and much more. I have been doing this for quite some time now. I trained the first neural network about ten years ago.”
Cashing Out Big
It has since paid off, according to the CEO.
Without providing substantiating data, he claims FaceApp has been profitable since the first launch two years ago, with “good” revenue and growth figures. “We’re very profitable,” he says.
“I could easily have got investment from Silicon Valley… but we had enough to grow organically.”
While Goncharov has no need for Silicon Valley investors for now (he says he may approach VCs in the future), others in the bubbly business of photo apps have either taken big funding rounds or been acquired.
Snapchat snapped up Looksery for a reported $150 million in 2015 and Teleport for $8 million in 2018 to help grow its library of AI-powered filters, while Oakland-based photo app VSCO raised $90 million over two rounds.
FaceApp makes money from nothing more than a paid-for subscription service. But the founder has not disclosed how much revenue that it is scooping in or how many paying customers he has. He is also secretive about user numbers.
Goncharov does, however, disclose that the paying customer base was roughly 1%. Even taking a conservative estimate of 100 million users across Android and iOS, and just 1% signing up for a single month’s premium use at $3.99, the company is making at least $4 million per annum, and potentially a lot more if it’s locking in more users. (It’s also possible to pay $20 for a year’s access or $40 for lifetime use). Goncharov declined to comment on that estimate. But it’s not bad for a 12-employee business that’s been profitable for two years, by Goncharov’s account at least.
What’s Next?
Though other companies like Snapchat already do what FaceApp does with live filters, Goncharov doesn’t want to launch something that’s anything less than “magical.” He’s hoping that magic isn’t diminished by another privacy panic.
But Yaroslav Goncharov’s biggest success (and stress) has come with a company that’s minuscule by comparison: FaceApp. Leading a staff of just 12, the geeky, excitable 40-year-old has created what’s currently the world’s hottest (and possibly most controversial) app, which uses artificial intelligence-powered filters to gender-swap or radically age selfies.
“We only upload a photo selected by a user for editing. We never transfer any other images from the phone to the cloud,” FaceApp was quick to state. “We might store an uploaded photo in the cloud. The main reason for that is performance and traffic…Most images are deleted from our servers within 48 hours from the upload date.”
Goncharov said those terms were so broad because he had planned earlier to turn FaceApp into a “social network for faces.”
“To do this kind of product, our privacy policy had to be very similar to what Instagram had. Our current privacy policy is very similar to what Instagram has … but nobody blames Instagram, because it’s Instagram,” he adds.
Besides, it’s not FaceApp that users should be worried about when it comes to privacy, but all the other apps they’re already using, Goncharov argues.
“There are so many other apps that collect much more data,” he says. “We just don’t.
The App topped the download charts for both Android and iPhone this past week after millions followed celebrities like Dwyane Wade, Drake and Iggy Azalea in doing the “FaceApp Challenge.” The “challenge” was simple: take a photo, apply the aging filter and post an image on Instagram, Twitter, wherever, of the older you.
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.
South Africa has over 2.5 million small and medium-sized enterprises (SMEs) in South Africa but not many of them have access to funding. A business idea without funding is as good as nothing. Access to funding in South Africa has however been made easier because of a growing alternative lending sector that is focused on providing funding for this market.
Below is a list of the different types of alternative financing available to South African SMEs
Fundrr uses technological innovation and automated algorithms to provide quick and efficient loans to small businesses. By the use of a simple, free and paperless application process, they are able to take the hassle away and allow you to focus more on your business. Fundrr allows small businesses to get an answer the same day and access to capital in 24 hours.
They serve businesses with at least a 12-month track record, with a minimum of R1 million turnover or asset value.
Applying is free of charge and there is no commitment or obligations to take the funds.
They provide loans from R20 000 to R500 000 ranging in duration from 3 to 12 months and repayments are made either on a daily, weekly, bi-monthly or monthly basis, depending on your cash flow.
Retail businesses interested in loans can contact Merchant Capital for their offers. The loan merchant offers cash on flexible repayment terms.
Who may obtain their offer?
Retail business owners who have been in business for more than one year and who have an average of over R30,000 in credit and debit card sales may obtain their loan.
We understand that you are the one who built this business. So we respect the fact that no one understands its ‘ins and outs’ quite the way you do. With this in mind, we don’t prescribe what you use your funds for. That said, having funded millions of Rands to thousands of South African businesses, we know a thing or two. So we highly recommend that the cash injection be used for business growth opportunities, the company noted on its website
The maximum amount of loan:
Retail business owners may obtain as much as 100% of the business’ average monthly credit and debit card turnover.
It’s a good idea to have this amount handy to better understand what you can expect. Then, as soon as we have analyzed your statements, you will be contacted with a more accurate qualification amount, the company stated.
You can use iKhoka’s card machines for as many times as you desire. However, using it for more than three months will qualify you for a custom cash advance offer.
Who May Obtain Loan From iKhoka?
The iKhoka application works on a reward system.
The iKhokha Cash Advance definitely helps take your business to the next level. Here’s how you can qualify for a custom Cash Advance offer:
Be an active iKhokha merchant
Must have traded for the past 3 months consecutively
Must trade at least 3 times a month
Must complete a minimum of 10 card transactions a month
Must have completed a card transaction in the last 15 days
Your turnover should be at least R2 500 per month
Your average monthly turnover for the last 3 months must be higher than R3 125
Check your offer in the iKhokha app and decide how much of it you need. The more you process through iKhokha, the bigger the amount you qualify for!
Maximum Amount of Loan:
The amount you get from iKhoka depends on the turnover of your business over a period of three months.
Zande Africa can order favorite brands in bulk from manufacturers at a lower cost.
The goods are delivered to one of its warehouses around South Africa.
Spaza shops owners order their stock through its driver/ sales agents.
Delivery is made within 24 hours to a Spaza Shops’ doorstep.
With Zande Africa, you can access funds to finance your trade and spaza shops.
Who May Obtain The Fund:
The target of the fund includes those who are looking to procure goods and stock for their spaza shops. In simple terms, Spaza credit supports businesses that are looking to procure inventory for their shops. Businesses desiring to go through this means can start by applying.
Maximum Amount:
Zande Africa provides finance depending on the turnover of the spaza.
Bright On Capital is an online peer-to-peer enterprise-lending platform, that serves as an online market place and allows SMEs to simply and quickly raise working capital funding from a wide range of traditional and non-traditional lenders.
These lenders include developmental funding institutions (“DFIs”), pension funds, corporate enterprise development funds, and other institutional investors.
Who May Obtain Funding From It?
Bright on Capital targets small businesses that have been trading for at least 12 months. These businesses must be supplying one or more corporates or credit-worthy public entities. They must also be expected to generate at least R1 million in annual revenues.
Complete the simple and easy application form, and submit the following documents on the website or via email or fax:
Your business’ registration documents.
Your business’ 6-month bank statement.
Your business’ tax clearance certificate.
Your business’ BEE certificate (For a business with a turnover of less than R10 million that doesn’t currently have a BEE certificate, you can complete an Affidavit and have it stamped signed by a Commissioner of Oaths. Once the Affidavit has been stamped and signed by a Commissioner of Oaths, it serves as a BEE certificate. Please click here to download the Affidavit.)
Your business’ latest audited financial statements and its most recent management accounts (optional for businesses generating less than R5 million revenue per annum).
Your business’ proof of business address.
ID copies for each director, member or partner; and
Proof of residential address for each director, member or partner.
ProfitShare Partners provides disruptive short-term capital solutions and transactional support to SMEs with valid contracts or purchase orders from reputable large organizations.
Who May Obtain Funding From It?
The fund targets SMEs with no track record, financial history or security with low performance, short-term contracts (up to 365 days) or purchasers with reputable large organizations.
Maximum Amount:
Small businesses may obtain loan from ProfitShare Partners from a minimum of R250,000 up to R5 million per transaction.
What Fincheck basically does is that it partners with South African banks, lenders and insurers to offer a live and independent means of comparing and applying for finance across 30 lenders.
Who May Obtain Loan Under It?
Generally, all business owners seeking finance in South Africa may apply for funding from the credit firm.
Fincheck Business compares business finance options for you. As the business owner — you simply need to complete the application form, which includes what you are looking for. From there, we have an algorithm that will work through your answers and match it to partner criteria* Based on these results, our engine will present you with business finance and partners that could best suit your needs. This whole process only takes a couple of minutes.
*Please note these results are not suggestions or advice from Fincheck Business or the FINCHECK group but are results based on your needs and partner criteria.
Lulelend has a strong history of lending to small businesses. The firm delivers business funding using proprietary scoring technology, which offers an instant funding decision on applications.
Who May Obtain From Luleland?
All South African businesses, no matter the industry or sector involved in trading for more than one year with annual revenue of R500,000+ can obtain funding from Luleland.
Amount: N/A
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.
