By April 15, 2019

The Bitter Truth About VC Funding; As Seen From The Eyes Of Some African Founders

By April 15, 2019

About two months ago, Jason Njoku, the founder of Iroko TV, made a confession which seemed to have put pain to the promising move of African venture capital funding. Since the startup space of the continent saw its first sign of light, external financing has been the prominent go-to for founders and early-stage entrepreneurs alike.

The avowal by the owner of “Africa’s Netflix” stirred mysterious information about this medium of financial backing, one which has been some back-fence talk up until now. According to Njoku, one should exercise a great deal of caution approaching an investor and when taking venture capital for a startup.

As grateful and fortunate as I am for the opportunity with @irokotv I will probably never start or run a venture backed startup again. My emotions can’t handle it. More Start-Ups Have an Unfamiliar Message for Venture Capitalists: Get Lost https://t.co/QgUrO9gzeo— JasonNjoku (@JasonNjoku) January 12, 2019

Now, Jason did not outrightly kick against taking VC money to champion the ambitions of a newly-found or growing company, but rather throwing light on the need to have a strong and pivotal strategy as one takes which some have shadily called “The Devil’s Money”.

Well, the turbocharged degree of risk and jeopardy that “sometimes” comes with such investment is not a reality every startup founder can manage. While there is a fiery farrago of feelings that come with raising a Series A from a VC – or more seriously, a league of them – tragedies can as well ensue in forms untold.

About The Exit, Not The Profit

Image result for VC exits
Source: VCpreneur

The venture capital of today is thriving, made evident by the fact that five of the world’s six largest firms were funded by the provision. But, how do you define success?

For me, it’s about what you give the red light to as much as what you give the go ahead. And in this case, venture investments are no different. While the money duly delivers massive collateral damage in the course of its stay, the prevalent VC model repudiates all ideas that do not fit within its sometimes thin definition of “an ideal investment.”

The co-founder of Jobberman and WhoGoHost, Opeyemi Awoyemi, keyed into Jason’s stance and revealed the difference between running a venture-backed company and operation another all by yourself

I founded @Jobbermandotcom and @whogohost . One was venture backed, other bootstrapped. One made me popular, the other made me wealthy.— Opeyemi Awoyemi (@opeawo) January 12, 2019


Correction: the other made me money/rich. Wealthy is another whole new level – we will get there.— Opeyemi Awoyemi (@opeawo) January 12, 2019

You can choose either as long as you know what you have to give and what you are likely to get. With VC, you can get between 0 and billions. More likely, 0. Self-funded is safer but less ambitious.— Opeyemi Awoyemi (@opeawo) January 12, 2019


It’s global & always been true. New founders just need to understand 1) a startup is a big business hypothesis 2)VC money is not by force and not all startups need VC— Opeyemi Awoyemi (@opeawo) January 12, 2019

Venture capitalists have their eyes set more on exits than on profits, and such orientation implies that scaling is fueled at all costs to jack up the valuation that matters to them.

For some founders, after sticking around in lobbies and putting calls through for months and even years, finally roping in that USD 1 Mn investment from a VC could mean signing off work-life balance completely and taking on an always-on-the-run kind of lifestyle to “make ends meet”.

Now, consider a region such as Africa where virtually no one has a sound comprehension of customers and markets, and you’d find that scaling becomes one quasi-demonic roller coaster ride, one overly bumpy journey that throws all models out during executions.

Africa; a market that is ripe for new ideas, has great innovative entrepreneurs & folks are still struggling raising Seed capital.A majority of African VCs, investors & private equity firms etc. would rather invest in high growth businesses, rather than high potential new ideas.— Naledi Mosieane (@naledimoss) July 23, 2018

For African startups to succeed we need to start prioritizing growth, both in terms of user and product over profit. Our VCs and investors need to realize this too. To be truly great we need to think long-term.— 5LICK (@iamslick) March 17, 2019


While there’s a big misconception in Africa that tech startups need VC money, there’s also the reality that most founders hate raising capital. That’s not because they would instead do without the money, but because fundraising can be in semblance to passing kidney stones for a few months.

VCs are more likely to invest in startups that have had previous exits, often turning out to be some comically easy process that requires nothing more than a phone call. But if a startup raises money for the first time, the investors are more concerned with how you can pay them off with profits than they are with the risk of your company closing down in a few years. Growth may be the right thing to invest in, but it doesn’t always work with a certain kind of formula.

You Can’t Frown At The Timeline

Image result for hurrying to work gif
Tenor.com

Through time, African VCs have strived to attain a reputation which introduces them as holy and understanding. But, sometimes, at the end of the day, VC money is still borrowed money, just like any other lend-me-some-cash transaction one can close.

So, explicitly and implicitly, you have to come to terms and work towards the lenders’ timeline. And what should happen when you do not meet the deadline? That’s another story. Based on global standards, an entire fund usually comes with a repayment period of ten years with the first five serving as the investor window and the balance representing the window for the founder to return the money.

@instacart and all the greedy VCs who act like benevolent champions of society should be sued.— Arty San (@artesesan) January 29, 2019


It’s something great that investors bring in some industry experience to strike partnerships that will not just scale the company, but also contribute to the development of the sector and the economic liberation of the region. Other times, entrepreneurs find themselves slotting in all they have all along the timeline.

In some cases, each subsequent year squeezing them tighter and heightening the expectations for a fast return on obscene profits. After all, the goal of a venture capitalist is for his or her money to come back and explode. Or, at least if it cannot cause a landslide, let the cash stroll back into the bank account the same way it went out.

Big VCs are getting greedy and hogging hot startup deals for themselves, say angels http://t.co/0OcBITPoJc— Business Insider (@businessinsider) August 20, 2014


It is every VC’s dream – whether they hide it or not – to see a company, they invested in getting acquired or file for an IPO as quickly and as successfully as possible, so that their money can get doubled or tripled in profits. The absolute demand for growth is sometimes the undoing of investees, as they never learn the operating discipline necessary to generate such cash, getting bigger than they can sustain.

If not careful, the cat is let out of the bag, they can’t be funded more, and the basic unhealthy nature of the business becomes vivid. The whole thing deflates like a severely punctured tyre. It’s a 10-year horizon for the investors, but a ticking time bomb for the entrepreneurs.

Too Many Cooks In The Kitchen

Image result for many cooks in one kitchen
Source: Bon Appetite

As the adage goes, too many cooks spoil the broth. This is similar to what happens when a VC invests in a startup. The capitalist gave a nod to the business because he wanted to generate more revenue streams and get more stakes and board seats.  But the owners of the enterprises have their minds fixed on other agendas, some of which are often personal.

That company that “started from the bushes and was fledged in an aunt’s garage may begin to develop faster than you – who have sacrificed everything – are comfortable with, especially if there’s some other person that’s concerned with making more money than you. You may get needlessly cajoled into expanding your team, getting a more spacious office or doubling down on your product line before you inner Bambi says you’re ready to.

Olumide Olusanya, the founder of Nigeria’s B2B startup Gloopro (formerly known as Gloo, a B2C firm), also has something to say.

I’m convinced that only founders and VCs pursuing a One-and-Done funding strategy can, in the end BOTH have meaningful outcomes in African startup from now till next 7-10years. Different reason for VC compared to founder.— DO (@docolumide) January 12, 2019

For the VCs, the classical multi-series institutional fundraising to chase down and own a huge market for a “winner takes all” outcome (ala Uber, WeWork, etc) won’t work because the African market is presently too shallow, small and fragmented to support such. See thread:— DO (@docolumide) January 12, 2019

For founders, exit markets in Africa are still small, immature & unsophisticated. Your chances of building 1) sth >$100m that you IPO or someone else acquires is <1%. Better to build & own 2) a good % of sth w/in Africa’s proven exit market caps ($5-50m) w/ >50% chances of exit.— DO (@docolumide) January 12, 2019

We were taught the concept of decision trees and terminal value in business school: even at $100million, 1 above👆🏻 still has a much lower terminal value than 2 above at $5million! Do your own thinking! And we haven’t even factored yet founder terminal % holding into this o!— DO (@docolumide) January 12, 2019


According to Jason Njoku and others who are dissuading African companies from raising unnecessary venture capital funding, the gestation period to profitability in a typical Nigerian startup is a long one. The seemingly unending period is the same reason many startups, and small business in the West African country collapse a few years after they are founded.

The typical way to curb this ramp is to raise capital, ramp up the market entry for quick growth and brace for some chemical-induced growth. Given Nigeria’s extremely volatile economy, the company can plunge to the ground of the timing is just off. If one runs out of cash, there’s no way around it. Just go home.

If you are looking for cautionary tales about startup founders that feel they sold their company rather than seek funding, there’s one too many. For advise sakes, it’ best to steer clear from these narratives. But for the sake of learning-from-experience, do flip and scroll all the pages you can get your fingers on.

Many founders till today live in regret that the business they built with their passion and sweat foundered while being captained by some scatterbrained investor because it morphed into the VC’s new vision for the future. By way of clashing ideas and too many projects to get a significant turnover, one may almost not be able to recognise his or her beloved venture anymore, thanks to the lofty financial and portfolio ambitions of some VCs.

Molehills Become Mountains

Image result for frustrated gif

Because of the pressure, they have been put under; investee founders are led by the forbidden apple to bury their heads in something other than the company’s problems, with the belief that fixing can be done alongside scaling.

According to Eric Parley – the managing partner at VC firm Founder Collective and co-founder of 3D impression company Brontes – scaling quickly is in itself something challenging so that most founders are immersed in the effort to go big and avoid going home.

Most of such founders lack the bandwidth to solve pernicious business problems such as supply-chain issues or inadequate quality control. Per Parley’s position, it is almost impossible to fix an ongoing problem while focusing on rapid growth.

Truth be said without raising an eyebrow, no one expects any startup to rake in profits during its early stage, especially in a region such as Africa. Learn from the tech unicorn JUMIA. This is mostly because of what Parley terms as the “marginal dollar problem”. There are many regular business instances where the owner is concerned with the increment of revenues, as long as what they spend to achieve it is reasonable.

When you have to do everything investor says, such as hiring an overpaid salesperson, you will become so much concerned about your burn rate that you forget the tiny problems that need urgent addressing. Carried away by the urgent need to scale as brought on by the VC, these molehills become mountains that may eventually crush down on the business.

And should it all boil down to liquidation, what’s left of the business is for the VCs pocket. While all these problems brew into enterprise disasters, you are busy hurrying from pillar to pole, too careful not to annoy the persons behind your venture capital backing.

At the end of the day, in as much as the VCs money does not reach the potential, it’s supposed to, it’s more of your loss. Either you decide to work with an establishment or hit the classrooms again for a more in-depth course in business management. The investor, on the other hand, finds his or her way, looking for another ripe business to pluck.

In as much as the lure of VC money is being seriously kicked against in some regards, it does not imply that all venture funding intiatiatives have skeletons in their cupboards. Venture capital in Africa is on the rise, and that’s actually good news for startups, whose success are sometime measured by number of rounds and size of investments.

featured Image: UpBOARD

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