• Papama Nyati

Founders, should you announce your fundraise?


When looking at the disparities among reports on venture capital activity in Africa, one of the big questions that surfaces is: what about deals that were not disclosed? As highlighted in AfricArena’s State of Tech in Africa 2021 report, undisclosed deal values range from $115m (calculated from Disrupt Africa’s data) to $240m (Briter Bridges) to $400m (Partech). These numbers differ due to varying research methodologies and access to information.


The debate around investors (and startups) releasing announcements for investment deals continues. On the one hand, some investors prefer to operate discreetly, flying beneath the radar to identify opportunities before other investors and, according to them, focusing more on investment returns than making deal announcements. This approach is typical among more established and mature VCs. This is contrasted by other newly established investors who have used their deals as “advertising” to founders – as an indication of their willingness to provide capital and to increase the ecosystem’s awareness of them as a credible source of capital. Kepple Africa Ventures exemplifies this approach as a relatively new player in the African tech sector; their activeness in funding early-stage startups and willingness to disclose details of the deals allows them to become more discerning or picky as more and more founders reach out to them for investment which gives the Japan-based VC access to high volume of deal flow.


What about startups, is it a good idea to disclose getting investment?


For founders, the stakes are more of less the same as investors when it comes to publicly announcing their business finances. Normally, a company that announces their raise with a press release will also include details that go beyond the actual amount. The follow up question to the amount raised is, “What will be done with the money?”


It has now become customary for startups to answer that question by disclosing operational details of how the new capital will be utilized - and almost all founders agree that, so some degree, this may be used against them by competitors. Mubarak Sumaila, Co-founder and CEO of BezoMoney, which recently raised US$200k in Seed funding, acknowledges that disclosing details of fundraising as a startup has its pros and cons. Sumaila leans more towards disclosing deals details and expansion plans in press releases. On the point of fearing what competitors will do, Sumaila believes the difference lies in the “execution of the plan”. He says, “Sure, my competitors now know what products are in the pipeline and what we are going to do, but knowing something and actually executing it are different things - if we can execute better, than there is no fear in disclosing.


Further to this, BezoMoney says that when you have a credible investor by your side and everyone knows about it, you yourself receive credibility, especially when dealing with banks as a fintech startup looking for an integrated partnership with these banks. However, depending on the sector in which the business operates, there may be regulatory risk in the information disclosed - as mentioned by Henry Mascot, CEO of Curacel, which recently raised $450k in a Pre-Seed round. So as a founder, make sure you have legal clearance when announcing deal details.


Speaking to Wandile Khumalo, CEO of South African med-tech startup, Syked, he also shares the same sentiment as BezoMoney when it comes to publicising your fundraise. “As a startup, you don’t have much to bank on in the early stages, so when an investor backs you, it boosts your image, especially when approaching big clients,” he says. In 2020, Syked secured a funding round from HaloCare that was not disclosed . Khumalo favours disclosing the amount of the deal, but not the terms of the deal (which he would rather share with potential investors than the public). In his view, sharing the amount of the deal does more good than harm - it informs the ecosystem and allows it to assess its progress.


Jim Chu, investor and CEO of Untapped Global Inc., asserts that the disclosing of deals by founders differs on a case-by-case basis. He says, “If they [founders] get good terms, I would imagine they would want to disclose. If they don't, I wouldn't disclose.” Jim also advises that it is more often than not in the best interest of founders in the early-stages to disclose deal details, as this will encourage less friction in their next fund raise.


Announcing can be good for your startup and the ecosystem


For founders that are closing deals, now or in the near future, the single-most important signal you can send to your investors, employees, customers and anyone else involved with your startup right now is that you are 1) open for business, 2) secure financially and 3) ready to continue to grow (or at least survive) despite the negative impact of the pandemic. As argued by Danny Crichton in his article, whether you are a growth stage company or early-stage, showing that you have capital, and even better, perhaps a path to sustainable positive cash flow, is going to do a lot to bring a sense of security and confidence from relevant stakeholders - and that’s very important energy that you need right now!


If you do decide to announce - here’s how you can do it


Not every funding announcement is the same, but there’s standard components you can include in order to make the announcement stick:


1. The news + the facts:

Who raised? How much? Who are the investors? Which investor led the round? What stage is the company? Mention any investors that invested in earlier rounds as it signals an ongoing relationship and continued confidence.


2. Background on the company:

What does the company do? Who is the founding team?


3. Quote from the founder or CEO

As the captain of the ship, it is best that you take the spotlight and speak on behalf of the company: your mission as a company, why this investment was needed, and what the future holds for the company.


4. Validation from the investors:

A quote from the investor(s) is an expert endorsement. Typically, the investor speaks to the reason for investment. This may include the executive team’s capabilities, why the company is exciting, or momentum in the market. In rounds with multiple investors, the lead investor is given priority and is often the only investor quoted.


5. A secondary major announcement

This is normally a brief on what the capital will be used for. Many startups will take the opportunity to announce new products, features, important senior hires in the team, major partnerships or clients. It is not always necessary to include this information, but it certainly makes the announcement stick as opposed to just a release that says “Company X raises X amount” .


To remember


Securing investment is a milestone for any startup – it’s a vote of confidence from a respected expert in your space and a signal that your company is positioned for the future, which is important to prospective partners and customers, as well as future investors. But tread carefully when you do announce - be strategic, keeping in mind your brand image and that of your stakeholder. And of course, be sure to execute quickly, in order to be a step ahead of the onlookers in the ecosystem that might want your lunch.



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