In the past four years, the tech space in Africa has grown beyond South Africa. It has provided investors and developers choices beyond South Africa, which for a long time had been seen as the source of tech innovations.
It is hard to talk about tech innovation without talking about capital; innovative ideas need dedicated time and people must meet basic needs. Whether its shoestring budget, borrowing from relatives and friends or taking a bank loan, funding is key.
For those in the tech space, venture capital is the buzz word. It is what start ups run to for growth and scaling services and products. Its not that the money is readily available but if you have all the factors working for you, you may find it easier than others. You can read past articles on venture capital and financing in Kenya, don’t miss the one on race and VC funding.
@whiteafrican has also written extensively on this topic and you can check out his articles.
For a latest look at the VC lessons, please read this piece I did on the sale of Movirtu to Blackberry and how the founders were left unhappy.
For the sake of this piece, let us deal with VC for growing companies, not start ups. You know the ones that have survives past the start up phase and can make money? Yeah, those.
There have been some successful engagements with VCs, where local founders make money but why are some cases filled with bitterness and bad blood when VCs take over? Look at the case of Wananchi Group since the days of Joe Mucheru….. yes, VC money helped scale company operations but what happened to founders? They were not exactly very happy with being elbowed out.
In my interview with him, TLcom founder says that VC brings in the money and must align it with a proper team. No one can argue with aligning your money with a team that brings in results and given the kind of money they made, it seems to have paid off.
One of the lessons is how to negotiate exit and share valuation. It seems there needs to be a big deal of legal input needed from the initial stages. Ben White argued a more complex point that I think those looking for funding need to understand before entering into any unions. How do you safeguard your interests and make sure your shares are not watered down? You can imagine starting a company, growing it and only to receive a fraction of the salary of the CEO in return for the shares and your efforts growing the company.
This may be the only known case, there must be other cases of Vulture Capital- where a founder realises its easier to just accept and move on.
So, the new lesson is that if you ever plan to seek funding, make sure you retain a lawyer from the word go. If not, make sure you have a relative or a lawyer who will sit with you and go through all the scenarios. There is no marking scheme, you can go through and still be messed up but at least, having a lawyer is better than having none.