What #AngelInvestors and #VentureCapitalists Want in #African #Startups

By Emmanuel Afolabi

This Webinar held on Saturday 16th October, 2021.

If you follow my social media pages and regularly check my stories on IG and WhatsApp/Facebook status, you would have seen it (alongside others). I often post stuff like that.

It was organised by Nairametrics for Startup founders to learn what investors want in startups, and the speakers included Iyinoluwa Aboyeji – Co-Founder of Flutterwave, Co-Founder of Andela, and Founder of Future Africa; Dr. Ola Brown – Founder of Flying Doctors Health Investment Company (FDHIC); Tunji Andrews – Co-Founder of Awabah; and Eloho Omame – Co-Founder of First Check Africa. Iyinoluwa, Dr. Brown, and Eloho are renowned Venture Capitalists who have invested in startups across the African startup ecosystem, while Tunji has raised funding for Awabah. They all shared their experiences and gave valuable insights into what investors look out for, and what startups should do to secure funding.

To put this in proper perspective, Dr. Brown’s FDHIC has invested in over 20 startups in the Financial Technology (FinTech) and Health sectors, including Paystack and Helium Health. Eloho’s First Check Africa is focused on female-led startups, investing exclusively in technology ventures led by women, some of which include HealthTracka (Nigeria), Tushop (Kenya), and Foondamate (South Africa). Iyinoluwa’s Future Africa connects investors to mission-driven startups turning Africa’s most difficult challenges into global business opportunities, some of the startups they have invested in include Bamboo, Nexford University, 54Gene, and Eden, with a mission to invest in about 100 startups in 2021. Tunji’s Awabah is a TechStars-backed Pension Technology platform that helps the unbanked and self-employed better manage their pension, they recently raised $200k in Angel funding from early-stage investors including ODBA and Co Ventures and Correlation Capital.

This post is to highlight some of the major points raised by the speakers, for startup founders who missed the webinar.

One important point that Tunji made was that ‘there is no strict model to approaching investors; you might have to pitch and keep pitching to 100s of investors.’ He gave his experience of having to approach over 80 investors to fund his business, they all said no, but in the process, he kept improving on his business model. According to him, he didn’t have to approach the investors that eventually invested, they did, and after they (Tunji’s team) announced the investment, some of the investors who had said no came calling with cheques. Interesting, right?

For Iyinoluwa, as an investor, Future Africa backs founders who are solving hard problems in a large market, those who invent new things that we didn’t know we needed; he is fascinated by founders who make use of data, especially data that are easily ignored by others. They also look at metrics, and he gave example of Flutterwave and Andela; for a business like Flutterwave, they want to know how many transactions can be done in what specific period; and for Andela, they want to know how many engineers can be processed in a specific period. This is because metrics is specific to each company and situation.

For Eloho, one important question that they always want answered is ‘can your problem scale?’ This is supported by Dr. Brown, who also believes that data is important, and that startups should design for where the customer is. They also look at the revenue of the startup per employee and user – what is the customer lifecycle? That is, if you spend $1 to acquire a customer, how much will you make from them and for how long will they continue to patronize you?

On valuation, they all agree that this is one of the most difficult aspects of funding a startup, especially early-stage startups – how much is your startup worth? For Eloho, in determining the value of a business, they look at similar businesses and how they did it at that stage (for instance, if it’s a health startup, they look at what a similar health startup that had raised funds was worth when they did it), they look at the market size, they look at the business model – does it have a reoccurring revenue? She believes that second time founders have an edge in this aspect. She also gave a heads-up about some ‘ridiculous’ offers that some investors do give startup founders, like offering $100k for 30% share of the business; in Tunji’s case, it was $50k for 40% equity. They advised that founders should do their due diligence and ask around when people want to put money in their business, they believe that relationship is more critical than the money the investors are putting in.

Eloho believes that in the valuation process, a red flag to look out for, is an investor that puts restriction on the money they are giving to you; that is, saying you must hire a particular law firm or accounting firm with the money, or that you must spend it on a particular thing with a disregard to your growth plans – as a startup founder, avoid it.

However, ultimately, what determines the valuation of the business is how much an investor is willing to pay.

For Dr. Brown, after getting funding, accountability is key, founders should spend the money on what they said they would spend on. Eloho believes that investors should be given regular updates, which could be through monthly memos to show progress. Tunji believes that efficient use of the cash is important – strategic key hires, marketing, and scaling.

For many startup founders, getting funding is not an easy task, especially in preparing the documents that they need for the funding. My team at DashingWords makes this process seamless; we help startups to create Pitch Deck, Business Plan, Business Proposal… the way investors want to see it. Talk to us today.

Emmanuel Afolabi

Team Lead, DashingWords Business Writing Services

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