Investing in Nigerian tech startups

Terms

Between 440 Fund and Accelerator Program, and the Startups funded by 440. Hereinafter referred to respectively as 440 and The Founders. In addition to agreeing to the terms below, all startups must upload together with their application:

  1. a six month budget
  2. their cap table
  3. their vesting agreement (signed by all founders). See a great description and suggestion here (thank you Brad Feld)

The Founders are agreeing to:

  • attend the whole of Deal Day on Friday 4 and Saturday 5 September
  • if not already completed, incorporate a company within 1 month of signing an investment agreement and make sure that everything you’ve agreed to here, is put in the shareholders agreement of the company
  • keep accounts of all expenses, incl Mr. Taxman
  • report plans and progress every month to the 440 Investment Manager
  • check before using 440 brand, logo, name
  • share information with 440 that may affect them, their reputation and their employees
  • when selling a controlling stake (above 50%), the other shareholders have the right to sell at the same price
  • 440 has standard pre-emptive rights in future fundraising
  • declare any outstanding litigation or other legal obligations that may negatively affect the startup
  • the CEO appointed by the startup can’t work elsewhere or participate in any other projects that may negatively affect his/her dedication or time commitment to the startup.
  • All employees report to the CEO

Not do these things without asking 440 first:

  • dissolve your startup
  • strip, sell, or give away the startups assets
  • issue more shares
  • make loans (except if that is your business)
  • take loans (except if that is your business)
  • pay out dividends
  • raise your salaries

The Founders are agreeing not to:

  • be criminal or engage in any illegal activities
  • cook the books, lie, or cheat
  • have liabilities, incl. tax liabilities
  • work for others during the program
  • sell, transfer, or issue shares without first offering them to your co-founders or 440

We invest using a convertible loan. It looks like this:

Q: What is a convertible loan?

A: It’s a loan that will magically disappear and then reappear as shares in your company. BOOM.

Q: And WHY does 440 use this instead of investing like normal people?

A: Having foreign shareholders is complicated and time-consuming for The Founders everyday run of business. I.e., opening bank accounts requires information on all your companies shareholders that would take time and expenses to procure. Issuing new shares, or updating share register, costs time and money that could be saved with the use of a convertible loan. We would like The Founders to spend their time concentrating on the core business and building stuff while in the program instead of messing around with lawyers and bank regulations.

  • loan is xxx
  • no interest
  • converts to xx% of all shares
  • issues money to you in 3 installments, last 2 conditioned on full participation
  • follow-on investment rounds under $100k will not affect share % of 440
  • the loan automatically becomes shares if you get follow-on over $500k
  • or can become shares whenever 440 wants

Disclaimer: in case you’re wondering, this is not really a legal document.