Somebody came to me recently with some news. The news was both good and bad. First the good news. Somebody wanted to invest in their company‎. The bad news, at least according to them was that said investor wanted to do it at terms they (the entrepreneur) considered ridiculous.

For people in Nigeria’s startup ecosystem, this scenario is all too familiar. No entrepreneur ever wants to give ‎up too much of their business. But the people in a position to invest argue that the tepid unit economics of the average Nigerian startup and associated risk profiles that do not guarantee a handsome return, if any at all, more than justify taking a healthy chunk of the company in return for their investment. One of the more common arguments where the subject has come up is buying a plot of water in Lekki has a significantly more guaranteed ROI potential than funding a Nigerian startup.

This is very troublesome. Perhaps if all the parties involved were more aware of each other’s realities, perhaps this would allow a pragmatic approach to be adopted by the people on both sides of the startup funding table? Especially as there are so many variables that go into determining what a fair valuation is — the stage at which the company is, revenue or lack of it, the founder’s track record, the size of the total addressable market…a case by case appraisal might reveal that the people who are asking for 40 percent of a startup aren’t necessarily vulture capitalists. It might also reveal that a startup’s value need not be routinely discounted just because it is in Africa. Maybe cashless acceleration

and raising millions of dollars right here in Nigeria need not be mutually exclusive.

At this time, I lack the expertise to come up with any sort of informed prescriptive, as theoretical as it might be, about how African startups should be valued, taking into consideration the unique economic and cultural dynamics of the region. Francis Onwumere once took a swipe at explaining this issue in a post where he spoke of discounted cash flow and comparatives as standard methods for valuing companies But not only did that effort go largely unnoticed, I believe the subject requires further deconstruction to suit our locale.

2014 will definitely witness a great deal of funding events — indicators suggest increased risk appetite for African technology startups from local and foreign investors. Already, Lagos is already buzzing from the heightened interest. This week, the next and beyond, droves of VC and private equity actors will descend on Lagos to see what deals can be done. The way I see it, answers to the question of what terms are fair to startups and investors, and how to arrive at them couldn’t be more timely.

So to those of the cabal and beyond, here is welcoming your perspectives. Leave a comment. Or better still, send in your notes, spreadsheets and powerpoint slides — anything could help advance the thinking on this subject directly to bankole@techcabal.com. The ecosystem is counting on you.

Bankole Oluwafemi Author

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