The Hard Truth: Why Most Nigerian Startups Never Raise Venture Capital | Adeola Adesina

Um, where are the builders? Is anyone building here? Builders. All right. Nice to see you guys.

Um, so here I'm about to show you the reason why 99 out of 100 Nigerians or 99 out of 100 Africans end up never raising venture capital. Right. Um, I have a 50,000 naira reward for anyone who can guess why we never raise venture capital. I have a 50 naira cash reward. 50,000 naira cash reward for anyone who can tell us why we never or almost never raise venture capital.

Who wants to try? Oh yeah, please give him a mic. Sorry guys, mic. Mic. Mic.

Okay.

I think one of the major reasons why um most most founders don't raise capitals actually two. First of one is trust and then the second is um road map in terms of how do you have this your idea figured out because they must trust you then they will be able to walk you through the joining that okay this thing you actually saying that you're raising money for deliver it at the end of the day

thank you I need two more just two more just two because of time so he did he did first thank you

so I would say ignorance All right, one more.

Okay, just let's take it quick. Very quickly. So, I would say it's because the African builders never really think across the borders. For instance, they don't really they actually think little in terms of their own ecosystem and they don't think outside the ecosystem.

So, you don't want them to build for Nigeria?

No, I do. You don't. One more please. One more. Just one more.

Don't worry, you guys didn't get it. But let's try.

Okay, one more. Okay. Um, one reason why I feel that um startups don't raise capital is because I believe that most blockchain startups they they they focus solely solely on technology. They they they love to talk about tokens, decentralization. They don't really talk about how users will flow with the app, you know, user interaction.

No worries, guys. We don't have time, right? Um I I'm about to show you I'm about to show you what the back end of venture capital is. I'm about to show you what the back end of raising capital actually is. I have 10,000 naira for who can cosplay this video.

You can say what is it said there in this video. Anyone? Is it? Okay. Please give her the mic, please.

Very quick. Very quick. We don't have time. Who Who's with the mic?

Take the mic first. No wor.

Okay. In that video, he said to the football player, "You are a failure. You can never make it. You are supposed to be serving dinner to the students in secondary school."

Is that how we said this? One more.

She did the accent. You are a failure. You can never make it. You are supposed to be serving dinner to the students in secondary school.

You are supposed to be a bummer. All right. Thank you very much. Please tell me that. But but the truth is the truth is 99% of African founders can never reach venture capital is the sad truth.

But I'm about to show you why. Oh, you don't have my latest slide. Okay. The reason why is simple, right? Um you're building a truck, not an airplane.

Can everyone say after me? You're building a truck, not an airplane. Uh-uh. You're building a truck, not an airplane. So, the thing is, what is the similarity between a truck and a plane, right?

They are both designed to carry heavy duty load. But the difference is if you want to carry your car now to Abuja, a car a plane will take you to Abuja, right? A truck will also take you to Abuja. But the truck will get there in say 48 hours. But the plane is going to get it there in how many hours?

2 hours, 1 hour max, right? That is the difference between those guys who can raise venture capital and those guys who cannot raise venture capital. So you need to ask yourself as a startup founder, are you building a truck or are you building an airplane? Now I'll give you an example in terms of startup. How many years did it take OP to become a unicorn?

How many years did it take OPE to become a unicorn? 3 years. Exactly 3 years. How many years did it take Interswitch to become a unicorn? 17 years.

Sorry, 7 years. OPE 3 years. How many years did it take Dangote to become a unicorn? 20 years. How many years did it take UBA to become a unicorn?

76 years. How many years did it take Money Points to become a unicorn? 3 years. Does that make sense? Oak, Money Point, you know, um Tesla, all of these guys are airplanes.

It took them between one to three years to get to billion dollar status. Meanwhile, the normal traditional businesses, the Dangotees, the UBAS, Lafage, it took Lafage 176 years to become a unicorn. Right? So, startups and venture capitalists are looking for people who would grow very very fast. Hyper growth startups who can go from zero to unicorn in two years.

Right now, I'm going to show you six reasons, right? or six factors that would show you whether you're building an airplane or you're building. So please go to investment readiness.xyz right if you're with your phone right now just go to investment readiness.xyz and then you're going to take the audit along with me right so 30 seconds investment readiness.

xyz XYZ. For those of you who are building a setup right now, I will show you whether you're building a plane or you are building a truck. If you're building a truck, um I mean there's no bad it's not bad, right? But please don't seek venture capital cuz you'll be wasting your time, right? So investment readiness.

xyz 3 two are we there? All right, great. First reason is that you're not just a great founder, right? uh and not being a great founder has context in venture capital. So let's look at being a great founder now.

Uh founder commitments. Are you working on your startup part-time or full-time? No venture capitalist is going to give you money for a startup that you're working on part- time. Right. First question, what's your team composition?

Are you a solo founder with major capability gaps or you're a small team with gaps? So you have a CTO, you have a COO and you have one community manager or do you have a strong team covering every technical and business execution um area? Right? So pick your answer. Let's go.

What is your heading velocity? Right. Uh another way to explain learning velocity is what do you know about your market that no one else knows? What do you know about the market that you're serving that no one else knows? Uh that will steal your learning velocity.

Uh and that's all for being a strong founder. So the first reason is what? You're not a great founder. Right? Second reason is you're building in a market that is unattractive for venture capital.

Right? So let's look into it. Um what is the market timing? Is it on right or is it clear? Um guys building stable coins are building in the best era cuz when we started cryptomo we started in 2021 where there was no stable coins right so if you're building around stable coins this is the best era to be stable coin because all the regulations CBN and you know central banks are passing stable coin regulations right so what is the market timing you want to make sure that your you have very strong technical regulatory and behavioral shift the most important thing is what is your market size right because people reach out to And when we do their market sizing, they are building in very very small markets, right?

So you want to be able to calculate your market size from the bottom up approach. And this is what it means. How much do you generate from one user? How much revenue do you generate from one user? Say $20 a month.

Multiply that by the amount of users you can realistically reach in three years. So say 20,000 $20 times 100,000 users in 3 years that is your sum right. So we want to look at your market size. Um what is your venture scale potential realistically? Can your company become a 100 million company unlikely possible clear path?

Please choose yours. What is your competitive positioning? Right. Um cannot identify competitors. Be very honest.

We understand our competitors but there's no clear differentiation. Those of you who are building startups where uh pricing is very very important. Someone will say I'm giving you dollar at 1387. You say ah they settle for 1385. Nah no clear differentiation.

But then do you have clear positioning and differentiation? So recap now. How do you know if you're building a truck or you're building an airplane? Number one is the founder. You're not just a great founder which is fine.

And then you're building in a market that is unattractive for business. Now third point is that you have very very low PMF potential. Now people read this and think I have very low PMF. No, you have very very low PMF potential. And let's look at that.

Where is your product? Idea stage MVP live product or scaled product? VCs want to invest in scaled product. Right? That means that you've onboarded users and your user base is growing.

That's what a skilled product is. What is the customer pain intensity and how to how to measure your customer pain intensity is remove your products from your users's lives. Do they complain or not even notice? Right? Because one day we went on break at Crypto Momo and there was rust in our WhatsApp community.

Complete rus complete wala that's how you know if you have very deep you are solving a very deep pain or you're solving a very light pain so is it nice to have is your product important or is it mission critical what is your retention like how are you able to retain users right so is it under 20% 20 to 50% 50 to 70% and 70% plus we want to play in the region of 70% plus what is your product. What is your product pool? Right. Um, if your product disappeared tomorrow, how would your customers react? If OPEC decides to close down right now, how are you guys going to react?

Right. You said if GTB decides to close down tomorrow, how would you care? Exactly. Right. So, most wouldn't care.

somewhat disappointed and very. So we want to invest in companies where if you pull out your product tomorrow, your users will be very very disappointed. What is user engagement on your platform like? Is it low? Is it moderate?

Or is it sticky? Right? So you want to invest in sticky products. And what is your core mode? Who knows what a pot is and you want to raise.

All right. So emote is what makes you defensible. A MOT is what you have and even though your competitor raises $100 million tomorrow, they cannot take your customers away from you. Right? So what makes you defensible against competitors, right?

So we have technology modes. That means you have a very very good product. We have network effect modes. So what has telegram the sharability that's network effect we have regulatory mode CGN has a regulatory mode because they have a license that no one else has and then we have cost leadership mode what that means is a computer comes tomorrow but the pain or the cost it takes your users to leave your platform to go to the computer is not worth it that's what cost leadership most so choose your mode and then we go to the next replication difficulty ulting AI brought about replication difficulty right so how replicable is your startup so how replicable is your startup easy moderate ad recap now first is what you're you are not saying this thing you are a great founder sorry it's just my style I don't mean that you're not a great founder right I'm so sorry right so being a great founder is number one you're building in a market that is unattractive for VC is number two and then number three is what you have low PMF potential Your traction is very poor and your traction is poor. No V is going to talk to you.

Your revenue is it consistent or inconsistent. So no revenue at all. Please don't talk to a VC. Right? Inconsistent revenue, you can work on it, but consistent monthly revenue is where VS want to play at.

Next slide. What is your revenue scale right now? Less than 1K, between 1K to 10K or greater than 10K. Right. Next slide.

Monthly growth. So when I say you're building a truck or you're building an airplane, it's about growth, right? Trucks grow 0.1% 1% month on month for the next 10 years. Airplanes grow 30%, 50% month on month till they become a unicorn.

Right? So what is your monthly revenue growth? Is it declining or flat? Please don't talk to a VC. Is it 1% to 5%?

At greater than 5% then you can want to start talking to VCs, right? And if you're playing at 30% plus, VCs will pursue you, right? Visit will come after you if you're playing at 30% plus. So please follow me. Investment readiness.

XYZ. Is everyone there? Is everyone there? So just click start the audit, right? And um we are at replication difficulty.

Nope. Okay, we're at monthly growth. So the next one is was unit economics. Do you know your unit economics? What is your cost of customer acquisition?

How much does it you to acquire one user? And then what is the lifetime value of one user? And then how do you scale that across your user base? If you don't know your cost economics, please don't approach a VC. Right?

And then the last one here is acquisition engine. Do you have a repeatable acquisition engine? Like, do you sleep tonight, wake up tomorrow morning, and you've acquired 1,000 users for doing nothing? And then you sleep the next night, you wake up the next morning and you've acquired 2,000 users. We want to invest in companies who have an efficient acquisition engine, right?

Uh and that's the end of um poor traction. Um the next the next one is on investment ready, but this is on legal readiness, right? Some brilliant startups are not legally ready to in take investments. Sometimes we don't have the CC. Sometimes there's no founders um agreements.

There's no shareholders. All right. Okay. So, please scroll down. Right.

So, the next one is on legal. Have you done your incorporation? Not incorporated local incorporation is fine for some investors but investors friendly structure is very awesome for some other investors. So if you have a delay corp registration and you want to raise um foreign capital, brilliant. So please choose your choice.

Um what is the founder equity structure? Right? Some of you will reach out to VCs and you don't have a founder agreement, you don't have an equity structure, you don't have an exit structure. Uh so please you want your founder structure to be documented and vesting. Right?

Investing means you have 50% of your company but you vest your equity over 2 years. So that means right now you don't have 50%. Right? You have 2% and time goes on you you keep getting shares from your allotted shares. Right?

So scroll straight down to where I have IP ownership. Right? Do you have IP ownership agreement for your startup? All that means is your developer can call this time and say now me build the go and take down your entire startup and your investor's money has gone to zero right so do you have a legal signed IP agreement for your startup and then finally do you have any existing disputes no investor wants to invest in a startup that is in court so if you're in court right now you want to make sure you settle your court dispute before raising right thank you so much so that's legal and finally Finally, finally you have your data room completeness. How many people know what a data room is?

You don't know what a data room is. So a data room is a is a data warehouse where you house all your documents, right? From your pitch deck to your investment memo to your founders agreement to your trade agreement. Every single thing an investor needs is in your data room. So go to the data room section.

I have 60 documents here. 60 very important documents that you must have before grazing. I'll just mention five. Your safe notes, your cap table, your ESOP agreements, your NDA, your IP agreement, your trademark, HR policies, terms of service, pitch deck, financial model, term sheets and product demo. Um, and so what you have to do is go to investment redet xyz, fill the entire audit with where you are at right now, get your score, and you can reach out to us if you want to rate it up.

Thank you so much.