FIVE LESSONS AFRICAN STARTUPS SHOULD LEARN FROM PAYSTACK’S AQUISITION

On the 15th day of October 2020, amidst the ongoing #ENDSARS protest in Nigeria, the world received news that one of Nigeria’s most frequently used online payments and processing service provider, Paystack had recently been acquired by a San Francisco based software and financial services company, Stripe.
This news has since brought a breath of fresh air to the Nigerian start-up community for several reasons, one of which is primarily the fact that despite the lack of adequate infrastructure needed for Nigerian businesses, it’s possible for entrepreneurs to attain their dreams despite the odds.
However, amidst the good will messages, it’s important to ask the question, how did they get this far? And what can we learn from the Paystack founders? That’s what my team and I would be addressing on this blog post, from a business and law perspective of course.

1. WHEN IT COMES TO SEEKING INVESTMENTS FOR START-UPS, LEGAL OWNERSHIP STRUCTURE AND COMPLIANCE IS CRITICAL.
In most (if not all) cases, investors request for co- ownership (by way of share capital) in exchange for their funds. Hence, when we talk about ownership structure, a sole proprietorship or a partnership, stands a least chance of accommodating investors for many reasons one of which is that it doesn’t provide the needed share structure for which investors could secure co-ownership.
A corporate legal ownership by way of a registered company would be a more preferred option.
To be investor friendly, a Startup must comply with all regulatory requirements needed to operate within a particular industry. I can’t think of any investor who sets out to acquire liabilities by default.

2. SOLVING A LOCAL PROBLEM IS GOOD, BUT APPLYING A GLOBAL APPROACH IS BEST.
You can’t talk about Paystack’s story without making reference to their acceptance into Y Combinator, an American seed money startup accelerator. Although their encounter with Y combinator wasn’t premeditated at the onset, the numerous benefits that came with such platform, more especially access to global investors, cannot be ignored.
Early stage African startups, apart from fund raising, must consider enrolling into platforms that has the capacity to equip them with technical information, as well as bring their businesses into global limelight.
Thankfully, apart from Y Combinator, which happens to be the largest startup accelerator in the world, there are other institutional investors, with focus on African startups. Some of the are; MEST, DFS Lab, Seedstars, Startupbootcamp Afritech, Google Launchpad Accelerator Africa, etc.

3. WHO AND HOW YOU NOMINATE AS A CO-FOUNDER IS IMPORTANT.
Paystack co-founders, Shola and Ezra were friends way back in their school days at Babcock University. When it became clear that Shola needed a co-founder, Ezra fit into the role as he had the technical skill need for the job as well as aligned interest with the company’s vision.
For most startups, the task of discovering an ideal co-founder may seem daunting, however, some criteria should never be compromised such as; possessing required technical skill needed, having business acumen as well as being sold on the vision. At the end of the day, every startup needs a co-founder who is reliable.

4. CONDUCT DUE DILLIGENCE ON INVESTORS.
Sadly, not all investors turn out to be what they actually project. Besides, should you accept to sign in an investor, your company would be taking in such investor for a long period of time (three to five years) in some cases. Would your company be willing to accommodate that?
That’s why it’s very important for startups to run a background check on previous performance of investors before they come on board.

5. OPT FOR LONG TERM RELATIONSHIPS WITH POTENTIAL INVESTORS THAN SHORT TERM FUNDING.
Paystack was purchased by its own investors! In the words of Shola Akinlade;
“At a global scale, the important thing to look out for when seeking investors isn’t just capital, it’s also to build strategic relationships. These are some of the reasons for instance, why Paystack chose Stripe and Visa – two of the world’s biggest payment companies as investors”.

Its important to note that Stripe had been in the picture for as far back as 2018, when it provided led an $8 million series A funding for Paystack. And with a growth potential exhibited by Paystack so far, no doubt it was a worthy acquisition for Stripe worth going into.

So far we can say this mindset paid off in the end, hence this million dollar acquisition everyone is talking about!

6. AS A START-UP, YOUR INTELLECTUAL PROPERTY IS AN ASSET, SECURE IT!

With so many concerns tech start-ups face on a daily basis such as: product development, fund raising, recruiting and managing employees, etc, securing Intellectual property might seem a distracting luxury your business cannot afford, especially at the early stages. Rather than defer protecting your valuable assets, you could evaluate those Intellectual Property assets that are critical to the value proposition of your company, and take adequate steps in securing them.

There are many ways to protect intellectual property; trademarks, patents, copyrights, confidentiality agreements (for both employees and co-founders), terms of service and privacy policy, etc.

The point is, having secured intellectual property projects your company’s value!

 

CONCLUSION.
I’m sure you learnt a thing or two from this blog post? Need is say that a startup acquisition is transactional and requires a lot of technical advice to scale through. If you’ll like to schedule a session to gain clarity on how an acquisition works, feel free to reach us at info.lepraxisng.com. We’ll be glad to hear from you.

Cynthia Tishion
Cynthia is a lawyer and currently serves as Head of Corporate / Commercial Services at LEX – PRAXIS. With her passion for business and entrepreneurship, she is actively engaged in creating awareness on the legal aspect of businesses through various platforms such as writing, public speaking engagements.

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