Fundraising

Fundraising in Kenya

I remember standing outside of our host family house in Nakuru, next to a cow and a few chickens, talking on the phone with a mentor of ours who would soon tell us that he wanted to invest in DUMA. At that point, Christine and I were huddled around the phone figuring out what having an investor would mean, and feeling both excited and terrified.

Competitions are King

As everyone knows, a startup cannot move forward without capital.

Because we started DUMA in University, we were exposed to many opportunities to win money with no strings attached. Sometimes the winnings even came in the form of giant cheques.

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DUMA began as a sah-weeeet idea in Startup Weekend, and we took home our first prize money – $750. YESSS. That got us server hosting, and led the way to many other competitions.

Incubation + Free Money = ❤

We were accepted in the spring of 2012 to join Princeton’s first accelerator program through the Keller Center for Entrepreneurship, the eLab. Given that the dream of many Princetonians is to follow their passion of consulting, the eLab needed to incentivize students to stay on campus over the summer rather than go to NYC for internships. They did so with a $4,000 stipend. That’s $8,000. Boom.

Thanks to student groups and entrepreneurship listservs, Christine and I were lucky enough to find out about a few competitions with Ashoka, Intel, and MTVu – which we then won. We even got a mention in Forbes!

With the $20,000 or so we had raised at that point, Christine and I bought round-trip plane tickets to Kenya. September, we landed in Nakuru in our new homes, to launch DUMA.

That’s when we got the phone call in the cow pasture and launched into the world of angel investors.

Calling All Angels

A few things we learned –

1- Company set-up – Angel investors are more likely to invest in US-based companies, so to all the Kenyan startups out there, if you are planning on raising money from outside Kenya, check out a Delaware C Corp.

2- Accredited – If you plan on raising from an institution (eg. VCs) later, you should make sure all your angel investors are accredited, so there are no complications down the line. A lot of crowd-sourcing platforms can cause issues for accreditation, so make sure to check into that before receiving crowd funding.

3- Stage – Angel investors come when you have an idea, but no real product (yet). They believe in your dream and are incredible resources.

For our seed round, we chose to raise with convertible debt. Convertible debt means that you are in debt – but instead of giving them back money, you can also give them back equity stake in your company.

As a note – you can also raise a seed round from a VC, but we didn’t – Cool Kahn Academy video here.

To Debt or Not to Debt

Startups often raise convertible securities (convertible debt or convertible equity, for example) when setting a valuation for your company is a challenge – usually when you are pre-revenue and can’t say – “Well, I’m making $100,000 a year, and typically startups in my vertical ie. e-commerce, hardware, etc. get 5x multiple for their valuation. Therefore, my valuation is $500,000.” (Not that I think early-stage startups should be valued only for revenue multiple).

There are a ton of articles about convertible debt online. You can find some here and here. Just keep in mind a lot of these articles are debating the merits of convertible debt in relation to giant rounds – millions. Your considerations will be different if you are raising $100,000.

Convertible debt is cool because you don’t have to set a valuation. But typically, you do put in a market cap, which you can read about here & here from people much smarter than me. It’s essentially a clause to make sure your convertible debt investors don’t get screwed with a $100M valuation and get 0.00001% equity stake in return for their early belief in you.

So that was our convertible debt round. We LOVE our angels. One, we met at that first startup weekend, one we met at Princeton through technology-for-development circles, and all are family of some sort. And they are super supportive.

Welcome to the Grant Life

At some point, one of our friends from Princeton (shout out, Eleanor!) told us about this awesome opportunity to apply for a grant from the Rockefeller Foundation Centennial Innovation Challenge. This grant targeted companies that leverage SMS technology to help connect informal sector workers to jobs (hello, DUMA!). So we won, along with 9 other mission-driven organizations, and it was great.

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For us, the grant was important because it helped us flesh out our plan for building our SMS-based screening test to pre-screen people for jobs. It could not have been better timing.

Real-time Update!

The next step of our fundraising process is ongoing. We are currently raising a series-seed round. That is a cross between a seed and series round in terms of documentation and legal work. We decided to raise from angels and family funds rather than VCs. The reason we decided not to primarily target funding from VCs for this round is because typically, VCs come in at a later stage, when you have solidified your growth model, and you also typically raise a huge sum of money from VCs (often minimum $1M) in order to grow super quickly. And they usually don’t want to put in too little money, because they want to get a big enough chunk of equity. That being said, certain VCs do put in money at an early stage, and at smaller amounts.

Given our round size and targets to hit from this investment, we weren’t ready for VC yet. So for a Series-A round, yes. And most likely, it will be to expand outside of Kenya.

Wrap Up

So that’s how raised funding! There are multiple ways to go about it but this is our story.

I had a ton of questions around fundraising while were were going through the process initially (and trust me, I still do). So if you are also someone with a lot of questions, write a comment and I’ll get back to you about my thoughts. I am definitely not a professional, so for anything over my head, I can refer you to an article from an expert.

Last Thought

And by the way – remember that you don’t need to raise capital all the time. There are tons of articles about how to raise capital online, but many from investors and VCs – you can see why they would want you to seek funding…right? If you can build an awesome product, get paying clients, and immediately start reinvesting profits into growth, you are good to go!

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