Thread by @ido_sum

#AfricaTech #reflections - How founders can go about choosing investors and why you should care. #deepdive 👇

1/ With fast growing amounts of money purring into #AfricaTech in 2021, found myself asked by few founders baout 'what value we add'. Yet, the more interesting piece is that most times they don’t bother asking. This is not only weird, it’s just pure wrong in my view. Here’s why:

2/ These are long term relationships. Very long. On average 5-10 years of shared journey, of which your lead investors may spend several years on your board or close to you. How much time did they spend getting to know you? Getting to know your team? Your space?

3/ Listen closely to the questions they ask in DD (if they do any). This reflects on how much time they spend thinking of you now, and a possible proxy to the future. Are these obvious questions? Did the bring to your attention material things you might have not thought about?

4/ Which doors/markets can they open for you? Can you learn about actual such examples? Does their areas of expertise and networks relevant to what you want to achieve & where you want to expand?
Can you quantify those and compare between alternative leads to your round?

5/ Take an hour (or 2-3…) to hold a deeper strategy discussion. Where do your potential investors think you can / should create most value? Are you aligned with them? Did they challenge your thinking or added to it?

6/ Do they push for higher ESOP? Do they care about a stable leadership and ability to acquire and retain talent? Or just maximise ownership? What’s their long term view on that?

7/ How do they envision exit? Flipping on next round? Sticking it out all the way? Both ok, but imply very different focus from them: maximise short term value, or building a memorable company for years to come. Quick wins vs world class foundations
What do you prefer? And why?

8/ Can they participate meaningfully in future rounds? How much they allocate to follow-ons? This is key if things don’t go as planned. Which always happens. 100% of the times. Will they be able to support materially in such times? Did you ask their current founders about that?

9/ Can they help with more resources? Which exactly? Which co-investors? Or follow-on investors? (can they show examples of doing so with others?) Can they help with debt if you need any? Or Credit lines? Or other forms of financing if any are relevant?

10/ How much of their portfolio will you represent? 0.1-0.5% (immaterial…)? 3-5% (material)? This can at times be a proxy to how much attention you will get, and how material is your success to them.

11/ In other words – will they really help if things go south, or as its one of many, they’ll let go easily and put time elsewhere. Again – not right/wrong answer here – but know what your optimising for.

12/ Who else is in their portfolio? Not just ‘brand names’ (which have weight), but did they support people you respect or can learn from? Do they engage and promote collaboration withing portfolio? How?

13/ Do they have the money they say they have at hand? Did they close their fund? Do they raise for each deal separately?
Ask directly. Make sure you’re not wasting time on non-existent money that will delay or never arrive.

14/ Also good to know: Is this the beginning or end of life of their fund? How many years they have before applying pressure to exit? The level of pressure may grow with time. At least have clarity on when and how.

15/ Which terms are the most material to them? Why? Other than for negotiation – it shows where their focus lies, and which decisions they care (or don’t care) about.

16/ At the end of the day – it boils down to who you like best. Yes – there is valuation, speed, least punitive terms etc. – but when signing up for a 5-10 years partnership – these will be less material than you believe.

17/ How close of a relationship you build, the level of trust, integrity, shares vision and shared values will matter as much if not more. Even in a reality that emphasises speed and short term gains (valuation) over anything – be smarter.

18/ Take you time. If an investor wants in - he won’t disappear on the day of the proposed TS expiry. DO YOUR HOMEWORK.

19/ Those decisions will be so material to both your quality of life and ability to build a truly great company - that you must be attentive. Listen, analyse, ask questions – and only then decide.

20/ All investors claim to ‘add value’ – but its up to the best founders to decide what it means for them, and find the best partners to support their journeys.
Feel free to add more from your experiences and share around.

#AfricaTech #AfricaVC