Startup Advisory - Afrikan Heroes

How Startups Can Build Trust With Potential Investors Online

June 6, 2020

From job interviews to IPO roadshows, social distancing rules are affecting all aspects of doing business. A group of local investors on Wednesday gathered online to discuss one of them, a key moment in the life of a startup: When potential investors gather information about a new business, before potentially deciding to open their wallets.

Ross Palley, general manager of Venture Lane Boston

Investors at some of the state’s largest venture capital firms — General Catalyst and F-Prime Capital Partners, both based in Cambridge — offered advice on strategies that can help impress investors in a conversation hosted by tech-focused co-working space Venture Lane and moderated by Ross Palley, general manager of Venture Lane Boston.

Due diligence — the process the venture capital industry uses to evaluate investment opportunities — usually involves questions to the management team, analysis of market potential, products and business model, customer calls, reference checks, and so on. What used to be completed over several in-person meetings has now transitioned over Zoom, a platform where it’s harder to build the necessary trust between founders and investors, according to the panelists.

“A lot of VCs, historically, like to know people over meals and drinks, and coming in and spending whiteboarding sessions,” said Gaurav Tuli, a partner at F-Prime Capital, during the event. “Those things are really, really difficult to replicate on Zoom, but that doesn’t mean that you still can’t build trust. You just have to do it in other ways.”

Here are three takeaways on how startup founders can maximize their chances to score investments, when most of the communications take place online:

Make sure team members share the vision.

Consistency in the vision for the business is a key signal investors look for, according to Tuli. As the due diligence process continues, investors will be likely to ask for meetings with many members of the team, not only with the founders, to evaluate their specific expertise. “So you meet someone from marketing, you want to hear that they are bringing their game to marketing and sales … but the first (thing we want to hear) is really, ‘We are all living and breathing the same message here,’” Tuli explained. With the pandemic, Tuli and Olivia Lew, investor at General Catalyst, say that meetings are shifting from groups to individual online conversations, but they agreed that the shift doesn’t really change what investors are looking for.

Don’t miss occasions to build trust.

“Most VCs are extroverts. We crave vulnerability, we crave discussion. The last thing we want to do is to flip through your slides,” Tuli said. That’s why it’s important to build trust with investors by demonstrating vulnerability, being open and honest, sharing about personal life — the same things that build trust that a person can work in the virtual world, according to Tuli. “If you start a meeting and you just jump right in to the pitch deck, you’re losing an opportunity for both sides to develop a relationship,” Tuli said.

Ramp up scenario planning.

Lew said that financial due diligence doesn’t necessarily become more robust because of the lack of in-person meetings, but the uncertainty of the environment inevitably impacts the financial plan of a company. “What we will dig into is the scenario planning that you’ve thought through, and what are your assumptions … and that level of detail is a little more in-depth,” she said.

Lucia Maffei writes for Boston Business Journal

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

Focus On Key Capabilities To Scale Your African Tech Business

May 30, 2020

Andreata Muforo, Partner at TLcom Capital

I conceived of this article at the beginning of March and by the time I was done writing, the Coronavirus had spread to most African countries leading to major social and economic impact due to lockdowns, restrictions and the newly formed reality. Several articles have since been written on how to navigate through this trying time by conserving cash, aiming for breakeven, focusing on existing customers etc. This article speaks about scale, a topic many would think is for rosier times but one we think is still relevant today because we are confident that there will be life once the coronavirus is under control, the Africa tech opportunity remains large, and some sectors will actually be accelerated. This belief led us to just complete our first investment into an African fintech player, Okra, announced earlier today.

TLcom has been around Africa tech VC for the last decade and we have had the privilege to interact and engage with hundreds of tech companies and from these we have observed common threads. This article shares key areas of focus for scaling Africa tech companies, depending on the type of clients (B2B or B2C) and the nature of product or service (physical or software/virtual goods). “Scale ready” companies are those that have good product-market fit and have sight of sources of positive unit economics. Each business will also have its own peculiarities, the goal here is to speak to some emerging broad themes.

1. Tech-enabled B2B companies:

These businesses are bringing efficiency in traditionally run, typically fragmented, and inefficient sectors that serve corporates and SMEs, including the small informal businesses that are so prevalent across the continent. This is the arena birthed out of the merging of software with physical-world products and services. Examples of services in this category include: logistics (e.g. Kobo360, Sendy), agriculture supply chain (e.g Twiga Foods, Agrocenta), used car sales (e.g Cars45), energy (e.g. Rensource, Solstice), healthcare (e.g. mPharma, Medsaf) etc.

These are attractive spaces to innovate because demand for the products is assured (clients already use the product or service) and the markets are substantially large. The novelty in the solutions is brought through aggregation and introduction of technology to cut process times, increase access and enhance customer experience. Companies in this space are generally lower gross margin businesses (mimicking the companies they are disrupting) and require more working capital financing when compared to pure software companies given that they are more operationally heavy.

Superior operational efficiency is key to scaling successfully (which when done well creates a strong competitive advantage) in this category because the companies are moving physical goods in markets with inadequate infrastructure; and unlike pure software businesses, a larger portion of COGS remain as you grow. Identify the levers required to ensure a long-term ability to match supply and demand for your service (e.g for Agrocenta demand comes from manufacturers and supply are the farmers). Additionally, detect the parts of your operational chain to provide inhouse and those to outsource as this can over time reduce operational weight. Lastly, think strategically about additional revenue streams to pursue through value added services to customers; the deep connection these businesses have with their clients, by virtue of the service offered and the trust created, advantageously positions them to offer more services.

2. B2B ‘pure’ software companies:

Are digitizing and automating processes for corporates and SMEs to support business processes thanks to affordable connectivity, and emergence of cloud which allows for sharing of computing resources and paying for services when you need them. Companies in this category are providing services in marketing (e.g Terragon, Mobiz), customer experience and data analytics (e.g Ajua, Ongair), accounting/expense management (e.g Accounteer, Popote), digitizing cooperatives (e.g Riby, Kwara), digitising fintech infrastructure (Okra, Paystack), etc. One of the relevant outcomes of these efforts is that consumer facing industries (telcos, banking, insurance, FMCG, retail) are gaining much better visibility on the African consumer, resulting in better segmentation and increased ability to acquire and retain target customers (see model 3 below).

The attraction to this space is the fact that SMEs in Africa have historically been underserved and start-ups are waking them up to the role technology plays in accelerating the growth of SMEs. Software companies provide horizontal services that cut across different sectors and therefore address a potentially sizable market. Moreover, software businesses are high margin and have great customer retention given the high switching costs due to the required technical integrations. Noteworthy is that enterprise sales in Africa are characterised by long sales cycles given procurement processes, especially with corporates.

Strong enterprise sales, technology and product teams are critical to winning in B2B software sales. For many start-ups, selling software requires time given the lack of an established brand (SAP and Oracle have been around longer and spent millions upon millions on marketing), need to convince the enterprises that their current solution is not optimal, and building trust as historically African enterprises have not bought software from African companies. Partnerships with organizations already servicing your target businesses (telcos, banks, industry associations etc) can allow for wider distribution channels. Without question, the product and tech team are also key because this is your ‘factory.’ Invest in hiring best in class tech and product teams, and this may mean sourcing talent from more technically advanced global markets.

3. B2C companies:

These companies are directly servicing the African consumer either with adapted models or newly created local content targeting consumer needs. For long, the Africa consumer has been underserved and traditional companies have been slow to innovate and met their needs. With 1.2 billion people (and growing) in Africa, the market opportunity is sizable. The African consumer has growing income and is now more accessible and ‘known’ because of high penetration of mobile phones and increased internet connectivity. Some companies providing B2C physical goods/services are realising that it will be difficult to dominate their space without an offline component due to a much smaller middle class and still high cost of data in Africa (e.g. in Kenya you can get an Uber outside the app by making a phone call). The urgency of the need and price point of product and service are critical to win in Africa B2C as the majority of the demand is from low income consumers. To date, the apps/ussd accessible B2C services that have gained the largest usage in Africa are for social media/entertainment, transportation, consumer lending, and betting — services that are crucial to daily life/business or addictive.

B2C companies selling virtual goods need to provide exceptional product/service experience and have significant marketing resources and capabilities to build a brand to win in their segment. Examples of services in this space include consumer lending (e.g Branch, Tala, Fairmoney), education (e.g uLesson, Eneza), digital media (e.g iRoko) etc. This space can have lower barriers to entry (especially if your product is a commodity such as loans) and tends to be competitive, so quickly differentiate your product and build customer loyalty. Additionally, the African consumer remains price sensitive and therefore develop a product that matches customer spend.

B2C companies selling physical goods/experience need to build trust and provide superior customer experience in order to succeed; this means having good control on the parties tasked to deliver on the promised service and significant marketing resources and capabilities to build a brand that attracts and also importantly retains users. Examples of companies in this space include e-commerce platforms (e.g. Sky Garden, Jumia, Kasha), transportation (e.g Safe Boda, Bolt, Swvl), energy (e.g Azuri, Mkopa) etc. These are typically two-sided marketplaces that create network effects by bringing together producers and consumers. Platforms often do not own the supply chain (though in Africa some do, especially in the beginning until they identify dependable partners), but rather control the network of third-party producers and the consumers coming to the platform. Trust is built by having a professional service, being available, receiving and acting on feedback. User experience is enhanced by facilitating the ease and flow of service (e.g. e-commerce entails making sure merchants have products in stock, payment processing and delivery is smooth, and reviews are processed effectively).

Inevitably, despite the best efforts to differentiate your offer, several companies competing in the B2C space should be ready to play the low cost / high volume game, due to the high risk of competition slipping into price leadership. Sometimes this is due to well financed non-African players expanding to the continent, or to local players backed by (too much) international capital anxious to replicate global business models, resulting in high level of cash burn and substandard returns.

While it is true that every company needs to have a good product, strong team and efficient distribution channel; each business however needs deeper core capabilities to succeed based on their service offering and customer type. Our observation has been that these competencies are key for scaling companies in these spaces.

As a founder, it’s important to understand your competitive advantage, and the key features critical for scale and strengthen those capabilities. In tougher times like now, the ability to distil your value proposition is even more critical as customers (businesses or consumers) are all looking to cut cost and focus on the essentials; modifications to sales or execution process, pricing drivers or the on-boarding process to show value quickly can be the difference between your business and its competition, and help drive scale even in the most challenging times.

Andreata Muforo is a Partner at TLcom Capital.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

Bolt Warms Up for Major Competition Battle With Uber, Raises 100 million euros

May 28, 2020

There are indications that the post-Covid-19 world will usher in serious competitions especially in the tech based businesses. One area where the competition will be fiercest is in the ride-hailing sector where market leader Uber is squaring up with Bolt and Lyft. This week, Bolt made bold efforts to raise the game by raising 100 million euros ($109 million) from London-based investment firm Naya Capital Management in a deal valuing the European rival of Uber at 1.7 billion euros. Bolt said the funding would allow it to grab market share in a sector hurt by COVID-19, as lockdowns have kept customers indoors, and rivals Uber, Lyft and Softbank-backed Ola cut thousands of jobs.

Markus Villig, Bolt’s Chief Executive and founder who visited Africa during the early stages of the lockdown to explore expansion prospects in the continent said that “in the next 12-18 months we have an opportunity to win market share,” he added that “even though the crisis has temporarily changed how we move, the long-term trends that drive on-demand mobility such as declining personal car ownership or the shift towards greener transportation continue to grow.”

In April, Bolt turned to Estonia’s government, asking to guarantee a 50 million euros credit, but it has since ditched the plan. “We understood quickly that from the state side there was no interest and we buried this plan,” Villig said. Bolt offers also scooter rental and food delivery, it has also expanded its food delivery business to 15 countries from four during this year as demand has surged.“It has multiplied. If you look at countries, from 4 to 15, the deliveries have grown faster,” Villig added.

Founded in 2013, Bolt, which has over 30 million users in 35 countries, has grabbed business from Uber mostly in major African cities and Eastern Europe.

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

Reasons Why Your Startup Is Still Not Getting Investment

May 24, 2020

Thomas Bird, a venture capitalist at a Canadian seed-stage investment fund

This is probably the most discouraging thing in the startup ecosystem. You’ve got a beautiful slide-deck, passion for your work, have talked with VC’s, but you still can’t seem to get anyone to commit.

After you’ve got your potential investor’s attention, there are still a few extra roadblocks that I’ve seen over the years that can be the culprits.

Let’s dive in.

1. Your financing plan doesn’t make sense

Investors don’t invest arbitrary amounts in startups, we invest in plans.

Investors want to ensure that you have enough money to make it to your next round while executing your business plan. You’ve got to show how exactly that is going to happen and how much it’s going to cost. If you pitch investors for $1M and they interpret your plan as needing $5M to adequately grow, you may have an issue getting them onboard.

If you need $5M to make it to your next round of financing and you’re looking for one investor to fill that entire amount, it probably won’t happen. Investors like to share the needs of a round and work with each other. They discuss the investment and each participates in the round to reduce the overall risk.

Takeaways: Have your financing needs defined and build a team of investors from that.

2. You haven’t looked for cheaper capital

Venture capital is expensive. It’s the most expensive money you can get because you’re buying it with shares of your company. Venture Capitalists should be the final partners you consider when funding your business, and they know it. They also want to know that you are going to be efficient with their money; if you haven’t tried or gotten resources from somewhere else, why should they give you theirs?

There are lots of non-dilutive funding sources out there: government programs, economic development initiatives, and select accelerators. You may even consider debt options (not payday loans or credit cards). There are lots of low-interest programs out there that are familiar with seed-stage risk.

Takeaways: Research other types of funding and incorporate those into your financing plan.

3. They don’t really know you

Venture investing is a long process. You are entering a relationship that can last up to a decade on average. For this reason, investors want to know that you’re someone who they can trust to deliver. This is the reason that so many investors are reluctant to invest in entrepreneurs they haven’t worked with before. So find a way to get to know them! An example of creating familiarization would be bringing on someone as an advisor who has prior experience with this VC.

Takeaways: Network and become associated with the fund through other ways rather than just asking them for money.

4. They haven’t fallen in love with the product

I’ve seen this happen multiple times, an entrepreneur has an interesting product but the investors just haven’t fallen in love with it. This can be tough to overcome but not impossible. It’s important that the investor can envision the product-market-fit.

Sometimes this comes down to the investor not fully understanding what your product does. I once heard a veteran VC say that before he invests in any company, he gets them to pitch to his 8-year-old grandson. If his grandson doesn’t understand what they do then he doesn’t invest. Simplicity and clarity are key.

Investors usually fall in love with a product when they see a clear path to revenue and the potential for serious adoption. Your job as an entrepreneur is to make that vision as clear as possible.

Takeaways: The first customers you have to sell to are your investors. If you suspect that the investors you’re pitching don’t understand the product fit, create an “Ah-ha!” moment for them. You can do this by clarifying the path to revenue and market adoption.

Thomas Bird is a venture capitalist at a Canadian seed-stage investment fund.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

How To Build Your Startup’s Founding Team

May 17, 2020

Joe Procopio is a multi-exit, multi-failure entrepreneur

Who should your first hire be? How about your fifth? Your 10th?

Every startup founder faces an overload of critical decisions early in the life of their company. None of these decisions are more important than selecting the first few people you choose to work with.

The makeup of your startup’s founding team is going to be the difference between success and stagnancy. An ineffective team won’t kill your company quickly, it’ll lead to a slow, painful, inevitable failure. To make matters more difficult, founders often get drawn to the wrong people for the wrong reasons.

In over 20 years of building companies, I’ve established a pretty solid track record of bringing together entrepreneurial talent. So I decided to take some time to review about a dozen recent matches to figure out what makes the good ones work.

To give yourself the best chance of getting early hires right, you’ll need to find fit first, then fill roles, then establish rhythm.

Find fit by filling gaps and attacking weaknesses

The first rule of startup hiring also happens to be the first rule most founders ignore: Don’t hire people who are like you, hire people to fill your gaps and address your weaknesses.

That starts with skill set.

An entrepreneur-turned-investor friend of mine likes to say, “In the beginning everyone needs to be either coding or closing.” I’m on board with this, with a couple twists. I like to strive for everyone to be either making or selling.

Making is more than coding. Coding builds the engine, making gets the car to the showroom. And to me, selling is more than closing deals, it’s creating a scalable machine that will move more and more product out the door at increasing margins.

Your balance between making and selling should always be around 50/50. Figure out where you’re weak, and fill that gap next.

Personalities should also be balanced across an early team. I’m not saying you have to box everyone into a personality category, but if someone is already in their own box, including you, you should probably fill those gaps and counter those weaknesses as well.

In other words, if you’re totally focused on the future, you need balance from someone who is focused on the now. If you’re super-strategic, you need someone inherently tactical. If you’re a good cop, go find a bad cop.

Passion can be overrated, but one thing you want to make sure of is that nobody on the early team is there just for the job. If the person you want to bring aboard is not sold in — if they don’t believe in the concept — they’re not a good early hire. They might make a good contractor.

As an aside, one of my favorite signals for measuring passion is when, after a meeting or interview, a potential hire emails a list of thoughts and ideas and questions they came up with AFTER the meeting or interview. And not the bullshitty, look-at-me questions or questions about their role or the viability of the company, but questions and ideas that show that they kept thinking about the problem and the solution after they left.

Fill Roles Carefully and Conservatively

Theoretically, the earlier the hire, the larger the impact on the business. But that isn’t always the case. Sometimes you just want helpers, not heroes. Here’s how to slot new folks in.

Cofounder: Be careful with this role. I’ve seen plenty of examples of people getting burned by not being made a cofounder when they should have been. I’ve also seen tons of startups that have cofounders who shouldn’t be cofounders, and they struggle with the dead weight.

Cofounders contribute more than a small share of the evolution from idea to reality. If they were a major reason why the idea went from thought to plan to existence, they should be a cofounder.

Executive: Executives don’t have to be cofounders, and vice versa. Executives lead the company or the teams. Making a CTO a cofounder just because they come aboard early is a mistake. Making a cofounder a COO just because they’re a cofounder is also a mistake.

Employee: Everyone else you hire full-time is an employee, and frankly, it’s too early to be making decisions about where people fit in the org chart. Usually you’ll be surprised at where things shake out on their own six months to a year in.

Advisor: These are people with a ton of strategic skills and experience that you might need close by but not day-to-day, and otherwise couldn’t afford. As an advisor, they can get paid what they’re worth, and you don’t have them slotted in at 40–80 hours a week at their rate.

Consultant/Contractor: This is also a good way to get a few hours a week or a couple solid full-time months out of an expert to fill a role you might not need full time, like finance, legal, or tech. In that way, they’re like an advisor, but these folks are tactical instead of strategic.

Rhythm makes it a team, not just a bunch of employees

It’s really freaking awkward to be the boss of one person.

And that’s true all the way up to about 10 or 12 people, because before that, it’s rare for a natural working rhythm to develop. So to get over that gap, you should proactively establish a new working rhythm every time you bring aboard a new person.

Basically, you want to get everyone around a table and hash through these skeletal guidelines with the new person:

Here’s what everyone else is doing.
Here’s what you’re going to be doing on our own.
Here’s what you’re going to be doing with other people.
Here’s how much of your time, as a percentage, you should allocate to each of these initiatives.
Here are your goals for each initiative, with milestones.

This isn’t a scrum or a status meeting, it’s a top down list of everything that is going on and who is handling it. It’s a guidemap for that person’s Monday to Friday, 8:00 to 5:00, or whatever hours your startup keeps.

Each time you add someone, you’ll set an initial benchmark to help the new person find their fit and help the rest of the team understand and complement the shift in workload.

Once you’ve done all this a dozen times, hiring gets easier. But these are good habits to form and keep, because hiring the wrong person for the wrong reason, whether it’s your first employee or your 500th, always does damage.

Joe Procopio is the Chief Product Officer at Get Spiffy, Inc and a multi-exit, multi-failure entrepreneur.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

Lessons From One Startup Business To Another During This Challenging Time

May 16, 2020

Casey Harwood is a Co-founder at The Archiplelago Partnership and Commercial Director at Engage Sports Media

As a veteran of two major recessions — and potentially a third — I have learned some valuable things about navigating both oneself and a business through challenging times. I was working at ITV in the 90’s when I first witnessed what a recession looked like for business, and whilst I was too junior to offer anything helpful strategically, I was determined always to work in a growing sector, a strategy that a few years later saw me move into multichannel PayTV becoming SVP at Turner Broadcasting Europe, primarily responsible for Digital and Diversification.

Leaving Turner after 12 of its best years was less of a wrench than I had imagined, but the question was, what to do next. Adhering to the belief that ‘growing company, growing sector, growing skills’ was sound policy, I joined Engage Sports Media, a digital agency created by a 2012 MBO from Endemol Sport. Engage’s vision was to tackle a then-unmet need in non-live digital sports content creation, an area with which traditional broadcasters were struggling.

The intervening seven years have seen me dispel or better understand what I thought I knew; cash flow, a start-up’s need to pivot quickly, how data is crucial, why good investors are even more crucial, why you can live without investors who are simply ‘ok’, successful international expansion within a finite resource, and why 25% CAGR (Compound Annual Growth Rate) straight growth is both a positive thing and brings its own set of challenges.

As a director and part of a multiskilled leadership team managing in what is now Engage Digital Partners — and with 20+ years’ of corporate experience before that, this is what I would share:

What I knew but took for granted

Much has been written about the importance of working with honest and reliable employees and clients. People need to work in places that suit them and be honest enough to see when they aren’t; not everyone has the grit for agency or non-corporate life, conversely, some people are too individualistic to fit into conglomerate cultures. To excel you need to be passionate and optimistic, not just there for the paycheque; optimism and passion are the qualities which buy time to figure problems out in days like this.

Jack Welch constantly advised his readers to invest in the best finance and talent they could afford. In the UK today, that means c.£250,000, which is straight off the bottom line. Engage could only afford when we reached our fifth anniversary, however, this investment ensured we lasted the last four weeks.

Everything you’ve read about the importance of teams is true. The connectivity between people in them means being able to say it straight, call on goodwill and create levels of trust, which builds over the years. This is critical, especially for effective remote working.

Today’s hierarchy is different, especially in digital and startups where the young workforce’s point of view is so radically altered. We found that graduate recruits and target client creatives judge us on our Instagram site, not our LinkedIn page; once we realized that, we knew that they could guide us as much as we could mentor them. Their creativity in lockdown has been in overdrive as they find workarounds to the challenges we face.

What I thought I knew but was wrong

As a company operating in sport, digital, and with no legacy, we are at the shiny end of the spectrum. However, even in this space where ‘tech plays’ and businesses with perceived IP are seen as easy to understand and at the super-shiny end of shiny, attracting the big valuations. I assumed the market fully understood our whole-business proposition but, despite huge investment in data and tech, people believed that we were ‘just’ an agency.

*One of the lessons is that for a startup, cash is king during challenging times*

What is set to change us forever

The lessons to take forward, unless you are a unicorn or blessed with fabulous timing, are:

Cash is king. It should be the first and last thing you think about professionally on any given day. The contract payment schedules we argued and conceded other points for have saved us over this period
Debt and Investment are different things. Live within your means and secure the option on cash before you need it — that way it will be there when you do
Develop your own IP and don’t rely solely on fees — the difference in doing this is that if client fees dry up, you still have IP on which to capitalize
Like the above — phase it. What you choose not to do is more important than what you choose to do. Don’t start anything you know you can’t finish. China and the USA are Holy Grails for many businesses but for us they can wait for when we have the scale to enter — and stay — in the market with a bang not a fizz
Be your own critic and cheerleader in equal measure. Only once you have three years’ trading experience under your belt have you been through a full cycle. At this point, do a review based on good advice and clever money
Work with people you like and trust and who trust you, but are different to you.

Time is literally money and where facing challenges and straight-talking need to trump politicking every time, it’s vital the CEO, OPs, Financial, Tech, Creative, Regional and in my case Commercial Director are eager to share, hungry to listen and also free to express feelings without fear of judgement; openly demonstrating this will filter through the organisation as the defacto.

Casey Harwood is a Co-founder at The Archiplelago Partnership and Commercial Director at Engage Sports Media where he drives international expansion and relationships with leading brands in sport.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

Advice To Startups On Courting Investors During Covid-19

May 10, 2020

Jessica Bartos, investment manager at AlbionVC

What is there to know about doing business with VCs during lockdown?

In any circumstance, fundraising for your business by holding talks with investors is probably one of the hardest things to do, but under Covid lockdown the task can seem especially Herculean. If you’re fundraising now, here are some thoughts to best manage it from a VC’s perspective:

Bear with us

As a tech company, you are likely accustomed to distributed teams, virtual meetings and remote working. You may even be a natively remote organisation like Github with over 1,000 people working 100% remotely.

However, it’s important to remember that VCs are actually small scale financial services firms. As you may know, financial services is quite far behind sectors like tech on the “future of work” adoption curve. So tools that are old hat for you may be quite new for us.

But, surprisingly, old dogs can learn new tricks. Faster than we thought possible, we are getting used to the day-to-day of remote working and finding the work gets done just fine. But please do be patient with our slow home wi-fi, Zoom camera snafus and perennial inability to find the mute/unmute button right when we need it!

Without IRL meetings, VCs are missing a piece of the puzzle

I think we can all agree, Zoom is not a like-for-like replacement for in-person interactions. Experts have gone into detail on the psychology of this. Bottom line for fundraising: it is hard to replicate the critical IRL (in real life) pitch meetings between entrepreneurs and investors.

This is not a trivial loss for investors. In a typical fundraising process, investors use several in-person interactions to reach an investment decision: a formal founder pitch to VC partners, multiple follow-on meetings for due diligence, site visits to meet the rest of the team, and perhaps after-hours dinner or drinks. We rely on these interactions to make judgement calls on founder quality and team dynamics. With VC-startup relationships lasting as long as the average UK marriage, developing this human relationship and understanding founders’ character is critical.

Because a core piece of the investment puzzle is missing (even leaving aside the economic impacts of Covid), don’t expect decisions made by investors on the same timeline as before lockdown. Be patient with us as we try to creatively replace these IRL interactions or wait until we can have them safely.

Frontload the work

So what can we do if we need to delay the in-person work until after lockdown?

I would recommend front-loading initial meetings and information sharing. There is quite a bit you can do remotely to get investors familiar with your business. During the lockdown, I’ve been able to replicate a good 90% of my work. I’ve done initial getting-to-know-you meetings, product demos, technical deep dives, financial model walkthroughs, market research and customer references. In fact, many VCs are grateful for the extra time for deep thinking about the investment thesis that lockdown can provide.

This is important work to building conviction, developing a relationship with the entrepreneurs and socialising the investment amongst decision makers. Put most of the puzzle together ahead of time so that after lockdown, IRL meetings can be held (safely) and final decisions taken (swiftly), and the last piece falls into place.

Over-communicate

When we can’t see each other face to face, it helps to compensate through extra communication and full transparency.

I’ve been trying to diligently follow up after meetings with emails to make next steps and action items explicit. With companies that we plan to take to the investment committee in a few weeks, we stay in close contact through weekly catch-up calls to check in on trading and on progress in fundraising with other investors in the syndicates.

When all our interactions are forced into digital channels, it doesn’t hurt to over-communicate so that everyone is on the same page.

Conclusion

The overarching takeaway is that amidst Covid, life and deal flow do carry on under lockdown for investors. Please just be patient with our tech skills, empathise with our desire to have some IRL interactions with you (or be open to creative replacements), front load work that’s appropriate, and stay open and communicative. We’re almost on the other side!

Jessica Bartos is an investment manager at AlbionVC, a venture capital firm based in the United Kingdom, which invests between £0.25–10 million in fast growing businesses.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

Navigating The COVID-19 Pandemic: Advice For Startups And Venture Capitalists

May 9, 2020

David Blumberg, founder and managing partner of Blumberg Capital

We’re living through a period of economic, business and personal uncertainty due to the COVID-19 pandemic. It has caused economic downturns and losses on a monumental scale around the world. The ambiguity around the depth and length of the economic slowdown has made it even more difficult for businesses to adapt.

In such times of volatility, it is critical that business leaders remain calm and look forward to the future, rather than making rash decisions in the moment. However, it is also important to act swiftly and adjust strategies in the near-term that will allow businesses to preserve necessary resources.

Small businesses will need to persevere through a temporary depression in most markets. This varies by geography and sector. This is the time to do everything possible to retain cash flow and maintain business operations, employees, product development and plans for future growth. Building a successful company and investing are long-term endeavors.

Here is my advice for venture capitalists and small businesses navigating through this period of unprecedented economic uncertainty.

VCs: Take a deep breath and act honorably

My advice for venture capital investors is to take a deep breath and sustain a long-term view. Remember, for early-stage VC in particular, we’re investing in the steady growth and potential of a company over time–10 years or so. While valuations will likely decline and there will certainly be a need for additional capital and support, the economy will rebound eventually.

Additionally, don’t be afraid to seek out new opportunities during this time. Again, while it’s likely that startups will need extra support, it’s also well known that some of the best venture-backed businesses were founded and funded in recessionary times. Examples include Facebook, Microsoft, Nutanix and Electronic Arts.

Remember that entrepreneurs, fellow investors and vendors will have long-term memories. Don’t overplay your hand. While you may see the opportunity to extract unheard-of terms, think twice and think as if the tables were turned. It’s in your best interest to partner where the relationship is fair and balanced.

Startups: Focus on R&D, people

For entrepreneurs with enough resources to survive 3–12 months of minimal new sales, this should be seen as a time to shift focus to develop a better product, improve automation of internal processes, and keep existing customers well served. This will not only strengthen the business overall, but will also place it in a better position to respond to pent-up demand and resumed competition once economic growth returns.

With that said, it’s undoubtedly a very confusing time for employees and managers alike.

Here are some steps to help ensure the well-being of staff and the company as a whole:

Be empathetic.

Reach out to employees, colleagues and investors on a personal level. In these unusual circumstances, people work best with structured processes, familiar routines, and when they truly feel connected, listened to, seen and supported.

In doing so, actively engage and utilize “social enterprise” tools for a work-from-home environment that may endure for months.

Think long term.

Try to act rationally, not emotionally. Base your actions on a clear set of assumptions, including contingency planning, that everyone understands. Keep your eyes on the long-term vision for growth and scale, but take appropriate stabilization and defensive measures in the short term. In addition, remember there are also opportunities to hire better people, do more training and make acquisitions, as well as other “lean forward” tactics. Consider adjusting key performance indicators and evaluations with flexibility, while maintaining rigorous measurement and efficiency moving forward.

Budget and use financial resources strategically.

Review your budget and focus on cash flow with scenario planning alternatives. Then, reallocate budget to top priorities and defer or close lower priority projects and initiatives.

Next, look for creative ways to cut costs by temporarily lowering salaries (starting with your own), deferring salaries or in some cases trading salary for equity options. For this, always check with legal and human resources teams.

Lastly, assess the credit situation with lenders and draw down available credit before it’s needed. And, when appropriate, take advantage of cash coming from federal and state programs such as the United States’ CARES Act loans from the Small Business Administration.

While it’s never easy to pivot quickly due to unforeseen circumstances, now is the time for small-business CEOs to prove themselves as visionary, prudent and trusted leaders to come out of this even stronger.

The path forward

Maneuvering through this historic and challenging time requires adopting the right mindset. While it’s difficult to carry on business as usual, it’s important to keep in mind that there is a light at the end of the tunnel and actions taken now will impact future success.

Over the long term, the behaviors exhibited, resources deployed, lessons learned and new protocols implemented can enable a significant step-change improvement and lead to a better future for entrepreneurs, employees, investors and their customers.

David Blumberg is the founder and managing partner of Blumberg Capital, an early-stage venture capital firm that partners with entrepreneurs to innovate and build successful technology companies.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

Venture Capital Investors Warn Founders About Deals Falling Apart In A Pandemic

May 5, 2020

Alexa von Tobel, a founding partner of Inspired Capital

In normal times, an investor is unlikely to cancel a deal because it could hurt their reputation among founders, and constrain their access to hot deals in the future. But in the current market uncertainty, some venture capitalists may pull back from pending deals as they conserve capital and devote what they do spend to fund their existing portfolio companies.

Five investors told Business Insider that founders should be “extremely concerned,” and four people said they should be “very concerned” about deals unraveling. The biggest group of venture capitalists, 8 respondents, said they should be “somewhat concerned.”

One person said founders should be “not so concerned.”

VCs are acting within their rights

A term sheet is not a legally binding document. It’s meant to clarify the expectations around an investment and the timeline for closing — the written equivalent of a handshake deal.

Many deals with signed term sheets end up closing, Semil Shah, an investor at Lightspeed Venture Partners and his own institutional seed-stage fund, Haystack, wrote on his blog in March.

“Most investors know that going back on your word, especially under a time of duress, will ruin reputations,” he said.

There were reports in January that SoftBank had reneged on term sheets it supplied to several startups in previous months. Sources close to the startups told Axios that the megafund had pledged to invest hundreds of millions of dollars before making vague excuses to delay closing, and then to kill a deal.

“Watch out, founders,” Paul Graham, one of tech’s most influential investors, said in a tweet responding to the news. “This is one of the most damaging things that can happen to a startup.”

The consequences for a cash-strapped startup are steep

A signed term sheet typically prevents a startup from shopping the deal around to other investors for at least a month or two while the VC firm that has already committed does its final diligence.

The company eats at its cash reserves during that period, with the expectation that money is coming. If six months pass without an investment, the startup could run out of cash and be forced to make cuts.

“We say that companies go out of business for two reasons. You run out of cash, or you run out of cash,” said Alexa von Tobel, a founding partner of Inspired Capital. She built a company, LearnVest, during the last recession and sold it for a reported $375 million.

Her advice to startups is to run a capital-efficient business so it doesn’t need to raise hundreds of millions of venture dollars. Alexa von Tobel was not among the investors we asked about the likelihood of deals folding.

If it can wait, wait

The consensus among venture capital investors was that if a startup can wait to raise new funding, it should wait.

The number of deals closing is expected to decline over the next few weeks, as investors hoard piles of cash on behalf of their existing portfolio companies. They may be less likely to write checks to companies they have no previous relationships with, because it’s harder to get to know the teams over Zoom.

Many venture capitalists hinted that founders should start their fundraising efforts by securing commitments from their previous investors to speed up the process. Those prior backers are more likely to reinvest, and their participation in the round creates momentum that might influence other firms to join, or co-invest as a lead.

For startups, the mission is to get the raise done, and get back to business.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer

Seeking Investment? Here Is One Framework To Consider

May 3, 2020

Noor Sweid, general partner and founder at Global Ventures

The multitude of investment frameworks can often leave entrepreneurs uncertain of the importance of the different aspects of the business they are building. Often asked how Global Ventures assess different opportunities, we are pleased to share our investment framework, inspired by El-Erian, former Chief Executive of the Harvard Management Company and the Pacific Investment Management Company.

In his bestselling book The Only Game in Town , the concepts of resilience, agility and optionality are established and discussed as a structure for asset managers’ to decide how to allocate capital (El-Erian, 2016). At Global Ventures, we have adapted these concepts to early stage founders and companies, arriving at our AURA framework:

Addressable market for the business idea,
Uniqueness of the idea and team,
Resilience of the company in the marketplace; and
Adaptability of the team and business model in the face of common challenges.

Let’s explore each of these in more detail:

Addressable Market

A key ingredient to success is a large addressable market that enables outsized returns for both investors and entrepreneurs over time. This can be broken into three distinct elements — TAM, SAM, and SOM.

TAM or Total Available Market is the total market demand for a product or service.
SAM or Serviceable Available Market is the segment of the TAM targeted by the products and services which is within geographical reach.
SOM or Serviceable Obtainable Market is the portion of the SAM that can be captured.

Layered on top of these are growth rates and market dynamics. While low market growth rates are not necessarily an issue, they create additional challenges, including switching costs and a higher cost of acquisition that must be factored into the business plans. On the other hand, high growth rates usually attract new players or existing businesses seeking growth. In short, an addressable market is not simply a matter of size, but also a question of attractiveness.

Finally, when considering addressable market dynamics, it is important to understand both the global and regional players. While there might not be obvious competition in the current market, knowing which international player may enter a market is key to understanding your business threats. This type of analysis provides comfort to investors, and it is useful to include an appreciation of the global impact of technology.

Uniqueness of the Product / Company

Understanding the unique elements of the business and your product offering is critical. As strange as this may sound to innovators, there are ideas aplenty and most Venture Capitals see hundreds, if not thousands of ideas each year. The uniqueness of your offering is what differentiates one idea from another. Unique components can be timing, insight based on past-experience or novelty. That said, novelty is not simply being different. It must be based on tangible data or insight about the reason clients will be attracted to your offering. Most business plans that Global Ventures’ review simply describe a technology solution to a problem without addressing the components that make your solution clearly unique.

We always encourage entrepreneurs to undertake a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis for both product and company, as well as exploring competitive advantages and disadvantages. Finally, an essential perspective is the market feedback on your product — real examples of clients who would use or not use it and the reasons why.

When undertaking due diligence, an important point of discussion is the valuation and deal terms. The terms must be win-win for both investors and entrepreneurs. They must be compelling enough for investors, while entrepreneurs must feel they are being appreciated for the value they are creating. In our opinion, this can only be achieved if the addressable market is large and the product/service is unique, with enough potential for shareholders to achieve above-average returns.

Resilience of the Business

Another important element that Global Ventures assess is the resilience of the business. Is it able to scale, beat the competition, create barriers to entry and grow, based on healthy Key Performance Indicators?

Understanding how to scale a business is not just about an appreciation of client numbers, but also which client segments, personas and geographies are most likely to use your product. CEOs must consider the internal resources needed to support a growing business, including where talent and technical resources will be sourced from. We seek to understand the company’s attractiveness to all its stakeholders, including clients, employees, and partners.

Every idea and business faces competition, if not at first, then usually soon after. Successful entrepreneurs usually plan early for competitors and are prepared for multiple scenarios. While we like to understand the competitive landscape, Global Ventures places more emphasis on how the product and company adapt to competition. Generally speaking, spending more money, especially on marketing, is rarely the best solution. Great companies succeed not only because of their unique ideas and market solutions but also their speed of execution and ability to out-maneuver their competitors by thinking creatively and strategically.

Since we are in the business of supporting entrepreneurs in building great companies, we consider the financial health at the beginning and at end of the journey. Understanding the costs at the beginning is relatively easy — talent, marketing, operations and so on are typical investments to establish a business and build a product. Of greater interest are growth plans after achieving product/market fit, including cost of customer acquisition, promotional marketing costs, incremental operational costs, cost of servicing clients, and most importantly gross and net profits. A company must demonstrate sustainable growth — a healthy ROI, margin expansion, and above average key ratios to become an attractive value proposition for investment.

Adaptability of the Team/Business Model

Even the best companies face unforeseen circumstances that can only be addressed by an agile and flexible team — starting with the founder and his/her direct reports. Investors are usually looking for a broad number of characteristics in the leadership team, which at Global Ventures we have coined CHART — Collaboration, Humility, Ambition, Resilience and Transparency. We believe that the characteristics of a true leader are apparent by example. Since most investors evaluate businesses over a relatively short period of time, behavior and actions are evaluated and discussed during the due diligence process.

The flexibility to pivot and adapt to market/client insights and needs enables some founders to succeed and others to stall. The most successful businesses perform some sort of pivot on their business/operating model and/or product/service to be better positioned to scale. Processes to continuously collect feedback from clients or the overall market must be in place and the product/service provided by a business must be adaptable enough to capture and address that feedback. This is a result of an adaptable team and business model, and is one of the keys to effective scaling.

Finally, Global Ventures always evaluates down-side scenarios for a business. If the market or competitive dynamics change, it is important to have an understanding of how the change will this impact the business and entrepreneur. We conduct simulations to understand and anticipate situations before they occur, enabling a quick and appropriate response.

Conclusion

The AURA framework allows us to evaluate investment opportunities in a way that ensures the founder’s ability to address a large problem in a structured yet agile manner. Working as partners with driven entrepreneurs, we have found that when there is a very significant

ownership stake, there is also likely to be a strong commitment to listen to the market, address a need and the desire to pivot their product and scale their business — all of which are a reflection of AURA.

Reference:

El-Erian, M. A. (2016). The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse. Retrieved from, https://www.amazon.com/Only-Game-Town-Instability-Avoiding/dp/0812987306

Basil Moftah and Noor Sweid are both partners at Global Ventures, a Dubai-based, growth-focused venture capital firm investing in revenue-generating enterprise technology companies that can scale

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer