MasiboLaw

Safaricom, which is probably Kenya’s only BigTech is buying startups. Should we be worried? Should we be excited? What does that mean for your start-up and the tech space? In this brief article, I explore some of the things to consider as we think about the move.

Entrepreneurs selling their startups is not anything new, most entrepreneurs sell their startups, more often than they think. They sell small shares of their businesses to venture capitalists and angel investors in exchange for funding or to co-founders in exchange for their time, skill and effort. The extent of investment that Safaricom will make in this start-up remains to be seen but I suspect that it will be significant as the move is driven by the need to improve profits and dividends paid to its shareholders.

This offers both opportunities and risks to entrepreneurs in the tech space.

Opportunities

Access to Funding

Almost every entrepreneur dreams of building an empire, a huge company or a monopoly that transcends their wildest dreams. However, most entrepreneurs are prevented from making these dreams a reality because of the lack of financial resources. I recently read an article where an entrepreneur was told that before he thinks of getting VC funding, he should “be able to raise 1 million* shillings from his network of friends and family”. Very few entrepreneurs have that kind of network. However, what Safaricom will likely offer both in terms of money and an existing customer base can easily make this dream a reality.

Access to customers

When you get Safaricom, you get access to its 40 million strong subscriber base which can work wonders for your business. For example, if you are an e-commerce company, you can easily access its subscriber base to sell and market your product. This will likely lead to you reaching more consumers faster than anticipated

Risks

Losing the essence of your business

The very size and financial resources that Safaricom has can also be a risk for the entrepreneur. Unlike a VC or Angel Network of a few investors in your business, Safaricom has probably thousands of shareholders. Anyone, who can afford 5,000 shillings to create a CDSC account can own Safaricom shares which means that they have indirect access, interest and a level of control over your business when you sell it to Safaricom. The truth is that shareholders are not interested in how you want to help save the world or reduce climate change, they want money – in the form of dividends. This means that there is a risk of your greater good aim being sacrificed at the altar of profits.

No Value for Money for Your Intellectual Property

In the hushed alleyways of the tech space, Safaricom is rumoured to be known for using ingenious and ‘mostly’ legal ways to get as much as it can from innovators and creators for as little money/investment as possible. This means that you might be paid a one-off fee for an investment that will earn Safaricom millions monthly for 20 years. This means that it is important to have a lawyer present to help you negotiate your terms, whether as a one-off payment or a “royalties” arrangement if you decide to “sell” to Safaricom.

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The writer is a lawyer who specializes in offering legal services to people in technology, you can reach him through info@masibolaw.co.ke