The Most Important Factor when Raising Money for Startups

The Most Important Factor when Raising Money for Startups

The MAIN factor that matters when raising money is building a good company. Other things like the slides, the suits, the no-suits, the pitch style, etc do not account more than 15% of the cumulative impact on success. Success has relations, vanquish is an orphan, they say.

If Nairaland wants to raise $200k today, many will invest. But Seun Osewa is not interested. He has no staff but runs the most popular indigenous African website [he is the only key staff; he has volunteers and minimized seasonal part-timers]. He owns it 100% [yes, he uses “Owner” as his title] and he ignores the world: does not attend conferences, events, ceremonies or anything.

I discuss Seun Osewa, the visionary young founder of Nairaland. Nairaland is Nigeria’s most popular indigenous digital property. His method is unique and by studying him, we can learn how we can build successful digital companies in Africa. Everything we know about scale, product innovation, and team has been challenged by Osewa’s Way. Because of his success*, I do think we need to pay attention. For example, he believes that Nigeria is his market, he does not care about Africa. Also, he does not see the need for outside investment because he does not understand what extra money will do for his business. Furthermore, he avoids publicity even when running a truly successful digital platform. The list goes on….This is Seun.

But monthly, he brings in millions of Naira with largely zero expense. Interestingly, when he has time, he puts rules to discourage engagements on Nairaland. He does not seem to like any social connection. But he runs the most popular indigenous social media website in Africa.

So, with everything you know about Seun, if he wants to raise money before investors who care in the area he works, nothing would really matter than the fact that Nairaland is a tree that produces cash. Many believe that Nairaland can do better but Seun has not changed it since 2005! For example, in-feed advertisement would improve the revenue base.

I am told that Seun has rejected many acquisition offers. He may just have Nairaland as an insurance to his retirement provided the hosting is working! Yes, if that site is up, money will continue to flow into his bank account every month. Many investors understand that opportunity.

So, as you plan to raise that cash, put more efforts on building a GREAT company over the mechanics and process of raising money. People that invest in companies may not even need any special drama when they see a great firm. They may not even need you to talk. Business plan is a waste of time under those circumstances. Yes, they would be asking you to provide your bank account, very fast. It happened in China when Sequoia Capital sued Binance.

Sequoia Capital, a venture capital firm headquartered in Menlo Park, California is suing the Chinese founder of the cryptocurrency exchange Binance, Changpeng Zhao (better known as CZ). The American VC fund reportedly accuses CZ of allegedly negotiating with another firm while he signed an exclusivity agreement with Sequoia.

According to Hong Kong court filings from March 26 and April 24, CZ and Sequoia started talking about terms for a possible investment by the fund in Binance in August 2017. And that the investment would have bought Sequoia almost an 11% stake in the exchange at a valuation of a mere $80 million. Unsurprisingly, as the prices of bitcoin and many other cryptocurrencies continued to rally, the deal seemed unattractive to CZ and the talks collapsed by the middle of December 2017.

Yes, the investor sued the founder for not collecting his money. That is the power of a great company. A great business makes one a great presenter because investors like good metrics and numbers. Sure, you need to work on your story telling and presentation but most times, those things do not matter if you do not have a great company.

But as you go through the process, even if that is not working, it does not mean your company is really bad. Sometimes, the company may need to move to the next level to unlock that value for investors to see. Many great companies like Mint.com struggled to raise money at the beginning. But when they picked up, money flew in. And that is a lesson: do not raise money when your firm is not in the “best” possible position. You would waste your trust-bank credit and come out empty-handed.

And most importantly, try to have a Plan B which means if that VC money does not come through, the company would not have to go extinct.

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