21 Aug

Ben Lyon of Kopokopo facilitating the two-hour session.

On the Wednesday of August 13, Power Forum lovers would assemble at the SCI PhD lab for nearly two hours of a mental up-building discourse facilitated by Ben Lyon, the Director of Special Projects at Kopokopo.

Kopokopo is undoubtedly among the leading platforms in Kenya facilitating online payment of goods and services. They are the official partners with Safaricom in promoting the ‘Lipa na M-Pesa’ campaign for Small and Medium Enterprises(SMEs). This Kopokopo boasts of having “reached hundreds of businesses from salons to restaurants to office supply stores.”

On the very day, Mr. Lyon was to equip on fundraising, valuations and partnerships, but even before he went any far with his illuminating facilitation, it was not difficult to glean that the techpreneur is learned; erudite.

Hence it would follow that almost each of the points he made was illustrated by a good read, for instance  from Eric Ries’  The Lean Startup, Brad Feld and Jason Mendelson’s Venture Deals, Tony Hsieh’s Delivering Happiness, as well as Eric Jackson’s Paypal Wars.

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Part of the attentive audience at the meetup.

The Kopokopo co-founder did not say much, but left very much in terms of resources which anyone aspiring to be a successful entrepreneur should consult. For our purposes, we will have a peek at just two of the recommended books as they are the ones offering working advice on that main problem that many startups grapple with: efficient fundraising, and running lean to recognizable success.

According to one sterling review featured at amazon, the Lean Startup approach fosters companies that are both more capital efficient and that leverage human creativity more effectively.  Inspired by lessons from lean manufacturing, it relies on “validated learning,” rapid scientific experimentation, as well as a number of counter-intuitive practices that shorten product development cycles, measure actual progress without resorting to vanity metrics, and learn what customers really want. It enables a company to shift directions with agility, altering plans inch by inch, minute by minute.

Rather than wasting time creating elaborate business plans, The Lean Startup offers entrepreneurs – in companies of all sizes – a way to test their vision continuously, to adapt and adjust before it’s too late. Ries provides a scientific approach to creating and managing successful startups in a age when companies need to innovate more than ever, so notes the writer at Amazon.com.

That done, we now take a look at what has been said about Venture Deals elsewhere at Techinasia:

Whether you are an investor or entrepreneur, the book “Venture Deals” by Brad Feld from the Foundry Group and TechStars and Jason Mendelson, also of the Foundry Group, serves as a reference for those who are involved in fundraising.

While venture deals can be complex depending on the context around the players (entrepreneurs, angel investors, venture capitalists, lawyers, investors syndicate and mentors), the term sheet and other structures which are required, this book serves a good overview of the subject…. [The]he authors in “Venture Deals” set up the whole book by focusing on two key things which matter in actual term sheet negotiation – Economics & Control.

[And it] starts by explaining each player’s  perspective and how they view the piece of the fundraising action. While most of the book is dedicated to the term sheet as a piece of legal documentation that dictates the economics and control of the entire deal, the authors also elaborate on the perspectives of the different stakeholders, particularly the entrepreneur and the investor. The book explains the economics and control of the term sheet well.

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More keen members at the forum.

On the economics side, the authors discuss the price, liquidation preference, pay to play, vesting, employee pool and anti-dilution in detail. A significant amount of time is spent on explaining how some of the terms can confuse the different players on the venture deal. In understanding control for the entrepreneur against their investors, they elaborate on control mechanisms such as board of directors, protective provisions, drag-along rights and conversion.

In measuring valuation —  how much a company is worth, most entrepreneurs can get caught in deciding whether it is pre-money or post-money valuation. Other side issues involving in the term sheet are also discussed, for example, proprietary information and inventions agreement, founders’ activities, and no-shop agreement. The most important part of the book, which startup founders are urged to think about, is the capitalization table where they work out how their ownership of the company would change before and after financing:

In the book, the question is well-posed — “What will I own if a VC invests X in my company at Y valuation?” They used an example and guided the reader through the process. Even if the founders are friends, having a capitalization table before negotiating with investors is vital. Otherwise, you end up in a situation which you live to hate: Working for someone with the title of an entrepreneur.

The remaining part of the book explains how venture capital firms and their fund structure work, but it applies strictly to the US. But it’s a good starting point for those involved in the investment side of things. Brad Feld provides a chapter about negotiating with investors, and he gives the following advice: (a) Achieving a good and fair outcome, (b) not destroying personal relationships and (c) understanding the deal you are making and that includes your ownership, the value of the company and the conditions involved in the term sheet.

It helps a lot that the authors did make suggestions to which terms are negotiable and which are not. This book will offer you basic working knowledge and also help you understand the process, observes the writer elaborately.

Interested in facilitating or attending a session of #PowerForum?

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About the writer
Moses Omusolo is the Social Media Manager, C4DLab.