Providing Liquidity to Employees in Africa

I saw this tweet from Mark Essien, the founder of Hotels.ng and it inspired me to write this article.

We founded mPharma on the belief that employees should be part owners of the company. Every employee from drivers to senior executives are entitled to stock options. As we worked on completing our Series B, we made a personal commitment that if we received more demand from investors, we would include employees in any secondary sale opportunity that arose. When you raise venture capital, investors that own preferred shares get to take all their money out first before common shareholders like employees and founders get to sell their shares. This has led to a situation where most employees never really make money from owning shares.

As Africa’s startup ecosystem grows, more people are trading “safe” jobs in big multinational corporations to take roles in young startups. This is great for the ecosystem as access to highly talented human capital is one of the biggest obstacles facing the ecosystem. As startups, we offer employees something the big multinational companies rarely give to their employees, stock options. We tell them to sacrifice short term compensation because the value of their stock options will create them wealth in the long term. However, most startup employees have never made money from owning stock options (if they are even offered). We wanted to change this narrative at mPharma.

The secondary sale process was more complicated than I expected since we had employees in Ghana, Nigeria, Zambia, and Israel who participated. However, our lawyers at Pearl & Cohen, led by Inbal Perlstein, made the process much easier. We had to get legal and tax advice from each of our operating countries to help us understand how the gains from the stock option sale would be taxed. We also had to appoint a paying agent to coordinate the collection of funds from investors and the payout to employees. On average, each employee earned $6000 from the sale.

I remember the difficulty in asking prospective employees to take stock options in lieu of more cash when negotiating compensation. Most people refused, and I understood.The secondary sale made it easier for employees to understand the worth of their stock options for the first time. More than 50% of employees decided not to sell their options as they now had a deeper appreciation for its worth. It also helped people understand that as mPharma continues to grow and do well, the value of their stock options will continue to grow. One of our earliest employees sent me the email below explaining why she would pass on selling. It meant a lot to me.

My advice to founders in the ecosystem is to have a chat with your investors to see if you can allocate a small amount out of your funding rounds to provide liquidity to employees. It may not be a lot of money but the gesture will build trust and encourage future employees to ask for stock options.

mPharma is always looking for great talent. We are interested in talking to you — https://www.mpharma.com/careers/