By NeONBRAND on Unsplash

Fundraising: Markets, Models, and more.

We started Series V in March to talk about the things we care about that we think you should. The things we spend our days talking about and our nights thinking about. Some of it comes from our investment application pipeline, some of it, from the people we meet, and some of it, from the things we read and listen to. But if there is one topic that underpins all the work we do in the service of great founders, it is this: fundraising.

According to Partech Ventures’ Funding Report, African startups raised a total of $560 million in 2017. For context, that’s only a little more than Toyota pumped into Uber this week. This is an unfair comparison, of course. The market conditions are not analogous — apples to groundnuts — but that’s exactly the point! The fact that this market is an untamed beast: hard, inefficient, and illiquid, means that the founders (and the firms) that figure out how to make these stones bleed will do very well for themselves.

The high population that lines pitch decks comes with high poverty rates. The increasing mobile penetration is not turning as quickly into internet usage. Founders from these parts have to pay an ‘Africa tax’ when fundraising to grow their businesses. But these gaps, these challenges are all opportunities for the best of us.

In the coming weeks, we will explore this topic in depth. What funding models work best for our ecosystem? How to manage expectations during the fundraising process? How to do investor communication and relations? How to think about legal? How to think about valuations? And so on.

For now, here’s some low hanging fruit to get us started, based on our investment conversations:

1. Start early. Always be raising: You shouldn’t wait until you need money to start raising. It is better to think about it as an ongoing process that yields results periodically.
2. Think about liquidity: Your investors care a lot about this, and you should too. How does the equity stake you are selling to them turn into a healthy return for their own investors?
3. Numeracy: Show that you have a firm grasp of the key metrics that drive your business. Learn to speak authoritatively about your numbers, now and in the future. Aside from memorizing them, you should also maintain a data room, where investors and investment analysts can access all the information they need to take a decision. (This should be obvious but is missing in too many cases.)
4. Spatial awareness: Show that you don’t have your head in the sand. Beyond your immediate concerns, what does the broader business landscape look like today and how will it evolve in the future? What does that mean for your business?

Links from the Internets

• The informal cooperative society for handcart pullers of East Africa. [Link]
• Samir Kaji on the key components of an emerging VC. [Link]
• “Sometimes you need to consider a cycle of change that fluctuates between doing things differently”. [Link]
• Protecting against groupthink. [Link]

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