Lessons Learned from the African Pre-Seed Podcast Live Event

by MMC
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live recording of the AFRICAN PRE-SEED podcast
(From left) Loraine Achar (Moderator), Bruce Nsereko-Lule, June Odongo, Jason Musyoka

In the context of 2023, described as the “funding winter”, Founders Factory Africa organized a live version of the African Pre-seed podcast. According to funding for African tech startups from Disrupt Africa Reportinvestments in African startups fell by around 27% in 2023, while the number of investors halved.

The event brought together media personalities, founders, investors and technology enthusiasts in Kenya. The panelists on this live podcast episode primarily focused on the “rights and wrongs of financing.”

Lorraine Achar-Ogada, Senior Investment Associate at Founders Factory, moderated the discussion. She was joined in conversation by Senga Technologies Founder and CEO June Odongo. Alongside the two ladies were Seedstars Africa Ventures co-founder and general partner Bruce Nsereko-Lule and Rology CFO Jason Musyoka.

Startups need clear roadmaps

Changing investor priorities was the relevant topic that opened the discussions. It has become clear that founders today need to have a clear roadmap with actionable milestones (pilot, funding rounds) and contingency plans.

Nsereko-Lule stressed that “Founders need to understand the steps they need to take to make the business sustainable; set milestones to achieve profitability. 18-24 months is ideal for raising funds.

The clear roadmap should also be subject to constant review and modifications made as necessary. June Odongo spoke about continually validating aspects of the business model when building a startup. She says, “At one point, we were going to raise funds when we had validated our idea and it was growing well,»

June adds “Then we had a lot of competitors imitating some of what we were doing and raising tons of money. At that point we were going to relaunch and I decided not to because it was clear to me that things weren’t going to go well. So we withdrew and pivoted to a new niche,»

It is in the spirit of continued validation of the economic model that the panelists agreed that the accelerated growth that characterized the post-2008 financial crisis is not the way forward. Startups should choose a low-interest environment and aim for sustainable growth.

READ: Navigating the turbulent waters of financing African startups

Choice of investor by the founders

Even when investment cash does not flow freely, founders should be careful in choosing an investor. Musyoka spoke about the need for founders to look at their niche and discern whether they need a local or international investor. Preference should not always be given to international investors.

Indeed, certain business niches require an investor who understands the local business context. “The beauty of local investors is that we understand the context“, says Musyoka.

And not just context, we also have networks. There are doors that the senior executives and CEOs that they introduce to you can open for you, or businesses that they can open for you that they can open that you wouldn’t be able to open on your own- even.

Share dilution

Musyoka also spoke about investor demands and how good they are. He stressed that the arrival of investors opens the door to dilution of shares. So, every time capital is raised or shares are issued, the founder’s stake decreases.

On the issue of dilution and what it means for the founders, Odongo said: “Much depends on the quality of the investor. There are investors I feel more flexible with, and it’s always about what they can bring to the table and what trade-offs there might be..”

Proceedings of the African Pre-Seed Podcast

Even with these considerations in mind, it is still important for founders to pay attention to the investment deals available to them.

If you have two competing term sheets in front of you, always opt for the one that offers the least dilution,» Musyoka said.

Musyoka believes that founders should strive to always operate within their known business framework. This may mean accepting a lesser investment, but Musyoka believes this is not always a bad thing.

Odongo was keen to point out that obtaining the right investor status could also involve suspending funding rounds, as Senga has had to do several times in recent years. His advice to founders is that they should always consider bootstrapping.

Sustainability and profit of startups

The panelists also talked about startups burning through investors’ money and looking to reap it. In the current context, the panelists advised founders to always operate within their means. “Always run lean“, says Odongo.

Investors are reluctant to invest in companies with low runaway performance. Additionally, founders need to have a plan B and a plan C. Ultimately, they need to be very realistic.

To add to this, Musyoka is keen to deter the constant increase, he says “For startups, raising venture capital is not a sign of success. We should go back to basics“,

Ultimately, a startup is a business and sustainability means that a business must make money to scale.

The highlight of the live podcast was Musyoka’s statement: “Revenue is vanity, profit is reason, money is king.

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