Thread by @NaijaFlyingDr

I know people would rather look at the "violence". But OO is making a point about things that have actually happened in the ecosystem.

I don't believe Jason was endorsing that behaviour at all. But these things have happened.

https://twitter.com/OoTheNigerian/status/1487455351586934784

Not at all common. The vast majority of founders are honest and straightforward , but what OO is talking about isn't hearsay.

There are actually three main variations of this behaviour.

1. Free rider problem. This is mainly due to the flood of inexperienced investors/small angels. Actually more the fault of the investors than the founders.

I describe in detail a similar situation, in the case of Isetan which was a Japanese company listed on the Singpore stock exchange in my video below:

Lots of small check angels that don't know each other all invest in a start up each assuming that the other person is monitoring and really no one is monitoring which allows room for expropriation by founders.

Most of the academic work published about free rider problems is in the content of the public equity markets. Because private equity firms historically took majority shares.

But venture capital is a type of private equity where there are many small stakeholders with minority stakes. So we can see similar problems as in the public equity markets.

Read more in this document published by the US SEC here: sec.gov/news/speech/20…

The levels of expropriation can be immense. So much so that what investors think is a fundraise for a business is actually an exit to the soft life for the founder i.e the fundraise is the exit.

But again this is more a problem of inexperienced investors than genuine founders.

2. Following on from 1. there is "Raise & bounce". This one happens even with experienced investors and isn't at all illegal. There is nothing you can do about this one unless you are a village oracle.

Its just when the company has not blown after a few years and a lot of the cash has gone on maintaining the lifestyle of the founder. (Not saying that founders should go and live in Ajegunle o).

Then the founder dusts his CV & gets a job. Or joins another start up. Many start ups that don't get into YC require an additional level of resilience/grit that most people simply don't possess. So they bounce. And your money has lost.

This can happen to anyone and its no one's fault. The vast majority of start ups fail. That's the truth that no one really talks about. Even YC companies have a 60%-70% failure rate.

So "raise & bounce" will happen to you as an investor at some point because people needs to move on.

But there are different types of founders with different levels of resilience. Takes discipline, skill and lucky to identify the "scrappy" one's that will make magic and power through even when you as an investor start to have doubts.

3. The worst kind of hedging which is unethical unlike "Raise and bounce" which is just unfortunate is "Raise and Hedge".

That is why @OoTheNigerian is so vehemently and passionately against anything that even smells like "Raise and hedge".

What I call "Raise and hedge" is a fundamental risk to the entire ecosystem. It makes investors look like clowns and further tarnishes the image of "Brand Tech Nigeria" by making us look as bad as the stereotype.

Raise and hedge would be raising money for a team in Nigeria and then relocating to the UK with the money and not even telling investors that you are working full time abroad and the start up is just a side hustle.

Or using the raise as a conduit to pay "vendors"; your friends companies & splitting the cash. This is another form of shareholders expropriation that I talk about in my corporate governance video which is seen in public companies in countries with poor shareholder protection.

Oo is insanely passionate about the Nigerian tech ecosystem and has built companies in that ecosystem. So this is what he viciously tries to guard against any hint of.

Watch this video to learn about the tools of shareholder expropriation here: