And in the middle of the chaos, one company quietly pulled off 125x growth in just 11 years.

No, it’s not in tech.
Not in solar.
And no, Aliko Dangote doesn’t run it.

Meet Africa Eats

Africa Eats started as a quirky experiment:
In 2014, an accelerator called Fledge raised $200k to bet on a handful of impact businesses. Some of the best-performing investments were food businesses in Africa.

That bet spun out into Africa Eats, which went public in December 2024 at a $25 million valuation.

That’s 125x growth.

I joined the party late in 2021 but still walked away with 31% IRR—a return most investors would die for.

But how?

If such an opportunity truly existed, someone would have snatched it up already.

I Saw It From the Inside

After investing, I worked directly with four Africa Eats portfolio companies aka “bizi”.

And what I found shocked me.

It was so obvious.
So simple.

No fancy apps.
No buzzwords.
Just profitable, “boring” businesses selling food, Africa’s most resilient and fastest-growing sector.

And the impact?

• 23 businesses

• 15 millionaires minted (the founders)

• Thousands of jobs created

• $68m+ paid to 30,000+ smallholder farmers
  
  

And the people behind it?

A serial entrepreneur from Seattle so contrarian that he prefers the nickname “Luni” over his birth name:

And Jumaane (“Tuesday” in Swahili), a Kenyan-Nigerian-Guyanan-American Entrepreneur who “unschooled” his children in tens of countries.

When Steve Jobs said, “Here’s to the crazy ones. The rebels. The misfits. The round pegs in the square holes,” he was talking about Africa Eats.

Why Did Their Model Work?

1. Long-Term Relationships

Instead of selling off companies like a used car in 5-10 years, they took inspiration from Warren Buffett’s Berkshire Hathaway “forever structure.” Eats plans to never sell. Their favorite holding period is forever. Why would you sell a portfolio growing 55% year-on-year.

Founders trusted them. According to the funder review site, sunlight.reviews “the best investors I’ve ever worked with.”

2. Lightning-Fast Capital

Because of long-term, trusting relationships, Eats could deploy working capital within three days of their bizi receiving a large purchase order.

Compare that to most funds, which take 3-12 months to respond.

3. A Tight Club

It’s not for everyone.
Entrepreneurs want to be in the Africa Eats network.
Those inside? Thriving.
Those outside? Wishing they were invited to the party.

4. First Principles Thinking

1.5 billion people need to eat.
And they can’t eat software.

5. Founders Who Won’t Quit

Back local founders even if they don’t have a fancy five-year financial model. Foreign founders can land six-figure jobs back home when things get tough.
African founders don’t have the luxury of failing.

So Why Isn’t Everyone Doing This?

Most investors in Africa aren’t trying to make money.

Wait, what?

Around 80% of African VC funding comes from foreign governments.
The rest? Mostly philanthropic foundations.

These “investors” get:

• No bonus for generating returns = misaligned incentives

• Tangled in bureaucracy

• Addicted to conferences

No time for innovation.

Meanwhile, get-rich-quick investors want to write $10m checks.

They raise huge funds to soothe their egos as a status symbol to brag about who has a bigger…fund.

Eats proved that the best deals are $40,000 + patience.

As Berkshire partner Munger said, “The best moat is just to be patient.”

Legal Innovation > Tech Innovation

Everyone’s obsessed with technical innovation.
But in frontier markets, legal innovation matters more.

Consider this:
The company itself was a legal innovation, so The Crown didn’t have to personally bankroll colonialism. (The Queen chartered the British East India Company—don’t let that trigger you—that’s just how it is.)

The 2-and-20 VC model?
A legal structure from the 1950s. That’s last-century thinking.

Africa Eats rewrote the rules. Literally.

They:

• Helped draft new rules for the Stock Exchange of Mauritius

• Launched the SEM X Board, tailored to high-growth African businesses

• Created Tuesday Markets, Mauritius’ first market maker to ensure liquidity

• Gave away the “secret sauce” in their book

amazon

Meanwhile, Impact VC dinosaurs are 20 years behind, running 2-and-20 solar-power funds like it’s 2005—John Doerr’s infamous mistake at Kleiner Perkins (worth chatGPT’ing if you don’t know the reference—heck, paste this whole article into ChatGPT to fact check that this is indeed a crazy but true story).

Everyone knows the old playbook isn’t working. But it’s a trainwreck no one can look away from.

Meanwhile…

“Bad boys move in silence.”
— Notorious B.I.G., Rule #2

Africa Eats has been quiet. But they won’t be able to fly under the radar for long.

A Cambrian Explosion of Funds Is Coming

Africa Eats isn’t a one-off.
It’s a glimpse of what’s next.

New fund structures are coming: leaner, faster, founder-aligned. Legal innovation. Capitalism is nothing if not ruthlessly exploiting profitable opportunities.

When I saw it, I couldn’t help myself.
We built on the blueprint with Kuzana.co:

• Free accounting + sales support

• Growth-first (impact second)

• Focus on key markets like Kenya. Maybe Malaysia and beyond one day.

• New legal innovations I can’t disclose yet.
  
  

Kuzana is one. There will be innovations.

“Vanilla” Capital Is Dying

Copy-pasting Silicon Valley models to Africa clearly hasn’t worked.
Africa doesn’t need unicorns.

We need millions of elephants: real businesses solving real problems and printing real profits.
Food. Logistics. Manufacturing.

Quiet giants.

Legal innovation.

125x growth.

❤️ like and comment if you learned even just one new thing

‘fund local founders’

‘unlock SME growth’

These are phrases heard repeatedly at the AVPA conference (Africa Venture Philanthropy). With that kind of focus, why does 94% of startup funding go to foreign-educated founding CEOs?

At the 1st annual AVPA conference, I had the opportunity to lead a session:

• Who gets funding?

• What’s the barrier?

• And how do we fix it?

The common wisdom is “foreign founders get nearly all of the startup funding, and this is racist.” The data suggests otherwise: classism, not racism. National founders do receive about 50% of international startup funding. The real tragedy is that only 6% of the funding goes to African-educated founders.

But it gets worse. Only about 5% of Africans are educated off the continent. Combined with the 6% mentioned above, African-educated founders get about 200x less funding on average than internationally-educated founders.

And yet we know CEOs educated on the continent can also be successful like James Mwangi and Aliko Dangote.

What’s going on?

Let’s dig into some never-before-seen data I have collected through my new website, sunlight.reviews. Let’s find out what is causing this discrimination against African-Educated founders.

Sunlight.reviews receives reviews from entrepreneurs who have raised equity, debt or grant. It then quantifies each step in the funding process to see where the blockage is.

For example, what is the total cost of an impact loan? There is the interest rate which is typically below market rate. But add in the disbursement fees, due diligence fees charged to the startup, management burden due to an impact funder and don’t forget the delay. A typical African bank at 18% interest will take 2 months to disburse a loan and as long as you pay on time there are no other reporting requirements. Compare that to an impact funder who can often take 1 to 2 years to make a disbursement but might offer 10% interest.

Which is better?

We looked at 30 impact loans and found that delay is the main ‘cost’ of raising money. A bird in the hand is worth 2 in the bush, as the saying goes. Interest rate is not the biggest driver. Take Kiva as an example which has a 0% interest, but delays and onerous reporting cause Kiva to have 45% effective interest rate! To get ‘patient capital,’ you have to be a patient entrepreneur. And that’s a problem. Patient entrepreneurs, willing to wait around for 2 years for an impact funder to get their act together, may be less likely to succeed. Impact funding has an adverse selection bias for patient entrepreneurs who might not have the urgency succeed.

‘What causes this long delay?’ someone asked at the conference.

I remember one time raising money from AECF, which took over 6 months from the time we signed a contract to the time we got cash in the bank (the contract signing itself was a 12 month delay from the initial application—18 months total from appliaction to cash).

By that time we were nearly dead. I hadn’t paid myself in months, I took a loan from my uncle, the staff pay was cut in half. And for what? AECF said they believed in us and yet nearly drove us out of business. We won in November and then there were delays that went into December. Then, of course, the Christmas Holidays. So, while the funder was enjoying their holidays, we barely had enough food to eat. I’m not joking. At one point money was so scarce I took Ksh200 from my change jar, all the money I had left, and bought eggs, kale and corn flour to tide me over for the week. Then the founder said the necessary signatory was on vacation until March. The money finally came in April.

Was this really a way to treat an entrepreneur that AECF thought so highly of that they awarded us $500k?

Another friend had the same experience with the Mastercard Foundation, but even worse. After making email and verbal commitments for funding, the Mastercard Foundation reneged on its promise. Because my friend had trusted the Mastercard Foundation at their word, they had built up capacity so they could deliver. This buildup of capacity caused my friend’s company to go under when the funding was taken away. The Mastercard Foundation has billions. And they are going to stiff an entrepreneur for $1m? It’s shameful. Someone needs to hold funders to account.

The delay is not just a financial burden. Delays cost lives. If you have a clinic and the fund delays for 2 years in due diligence, think of all the lives that were needlessly lost. Funders should care about delays if not for the entrepreneur, at least from the perspective of impact.

The funders in the audience at AVPA had great questions for me:

‘But entrepreneurs usually take a long time to respond with the required documents,’ say funders.

Totally. I have helped many entrepreneurs with the fundraising process. Often they don’t have all the documents. But why don’t funders tell entrepreneurs in advance what documents are needed? I have yet to see a funder who has a list on their website of all the documents that are ‘MUST HAVES’ and ‘NICE TO HAVES’. It wouldn’t be hard. The funder could even share anonymous examples of what they expect. Saying ‘we need an impact report’ is not enough. What kind? By a third party? Will a randomized controlled trial or just a survey do?

‘We can’t just make a fast decision, we need time to build a relationship. We need to build trust. ‘

Sure, I 100% agree. But is pushing papers back and forth the best way to build trust? Why not go on a rollercoaster together or to their son’s wedding? In China, my suppliers would always insist on going out drinking together. There are lots of other ways to build trust. Why are we so married to using documents?

They say english came to Africa on a ship. Well, documents came to Africa on a ship, too. It’s not natural here. Using documents as holy scripture is a European way of doing things, litterally. Why force that on Africa? Is this a form of neo-colonialism?

Focusing on Documents is one of the reasons that only 6% of funding goes to African educated founders. Anyone who lives in Kenya knows that most contracts are unenforceable. I know funders who want to see contracts with smallholder farmers for offtake. Pieces of paper don’t mean nearly as much to farmers as relationships. And rightfully so!

Maybe we can learn something from African culture rather than pushing our western ideas all the time.

‘My Investment Committee won’t trust me if I don’t have documents ‘

One African fund manager in the audience argued vociferously for the need for documents: ‘I can meet with an entrepreneur and trust them, but how am I going to tell that to my Investment Committee?’ Indeed! The problem of documents that discriminate against African-educated founders starts with LPs (Limited Partners). As fund managers, it’s our job to educate LPs so they can improve their behavior. Requiring documents that have nothing to do with trust bears significant resemblance to the former policy in the US requiring African Americans to take a literacy test to allow them to vote.

Knowing the definition of ‘supercalifragilistic’ has as much to do with voting as paper-pushing has to do with running an impactful business. 

Expecting someone whose third language is english to complete hundreds of pages of paperwork in a colonial language should make funders uncomfortable, at the very least.

Where does the documentation stop? Funders that used to require a certificate of registration and a bank statement now require 50+ documents.

‘What we gain in legalese we lose in goodwill.’

One funder approached me after the session to say that they used to have a 6-page loan agreement. Over the years, it has become 30 pages long. In that time, the repayment rate of their loans hasn’t improved. Without a countervailing force, there is little incentive for funders and LPs to contain the documentation bloat.

There are levels of trust too. Why do funders make it binary? Just visit the founder;

1. if it looks good invest $20k.

2. After 6 months and you get consistent reports, invest $100k.

3. 6 months later, invest $1m.

Typically funders charge a non-refundable due diligence fee as high as $100k. Why not just make a $100k investment and see what the company does with the $100k? It would cost the same but might have a better result for both parties.

My goal is to make an entrepreneur’s search for funding as easy as finding an Airbnb by 2040. That’s why I built Sunlight.reviews with my own money (no grants or government money was used) as a free tool for entrepreneurs in Africa. It’s a countervailing force that encourages funders to develop founder-friendly practices.

My goal might sound impossible, but I know it’s not. One of my best friends raised money from Peter Thiel, the first investor in Facebook, in a coffee shop in 30 minutes. Peter said,

‘Sounds like a great business opportunity. Let me know how much money you need. Send me your bank details. I’m sure the term sheet will be fine.’ 

Three days later, my friend had $3m.

This was possible because my friend had gone through YCombinator, and then YC president Sam Altman had referred my friend to Thiel. My friend used the YC SAFE standard, so Thiel knew the terms would be fine, and there was no need to negotiate a price. If they really care about impact, why can’t impact investors get a deal done in three days too?

YCombinator used to have 30-minute interviews. They realized that they only needed a 10-minute interview to get sufficient information about the companies to make a $500k investment decision. Why do Impact investors take 1-3 years? Assuming an investment in rural health facilities, delayed funding leaves many people to die without access to healthcare.

The true costs of requesting more and more documents and delays are not properly priced in to impact investors’ calculations. To save more lives, reduce discrimination against African-educated founders and build more trust, funders and LPs must deeply consider their complicity in the problem.

You can make a difference right now by writing a review at sunlight.reviews to highlight the best funders and nudge the rest in the right direction.

If you are an entrepreneur raising capital check out our acceleration fund at kuzana.co.

apply at bit.ly/applyKuzana

Kuzana is a spin-out licensee of Africa Eats, an investment holding company accelerator (modeled after Berkshire Hathaway) that has experienced impressive growth, investing in early-stage agri processors.

The secret to Africa Eats’ success? Fast investment in just a few weeks, compared to 2 years for most investors in Africa. Entrepreneurs love this.

At Kuzana, we typically invest USD 20k for 8-33% equity in each startup (up to USD 100k in follow on funding, as low as USD 10k for early stage companies). We then provide follow-on support like mentorship, accounting, sales support and sourcing working capital.

We plan to hold our investments forever and stick with our investees as long as they want us on the journey.

Everyone wants to invest in Software. We think that’s a mistake. The real opportunity is in Agriculture. By improving farming and processing, there is a potential to increase income 1,000x per hectare of land👇

Learn more at kuzana.co and apply at bit.ly/applyKuzana

Want to mentor? We need you, too!

All Kuzana investors, management and mentors are former entrepreneurs. Kuzana is for entrepreneurs, by entrepreneurs.

♻️Share with friends!

A major mindset shift is required as we transition from Scrappy Entrepreneurs to Strategic Entrepreneurs.

I will share a few stories that I guarantee will help you go from Scrappy to Strategic. 

You might think my stories are self-serving—and you’re right—but we have designed our business model to be completely aligned with our customers. Your success is our success. Thus, before you judge me, see if these five mental models will help you make tough decisions.

1. Value your time.

We entrepreneurs tend to undervalue ourselves, whether because we are told, “Your idea is stupid,” or because we have run out of cash So. Many. Times.

I remind our team of this: “Last year [Entrepreneur X] increased the value of their company by $1m. They own half of the company. That means their time is worth $300 per hour. Don’t waste their time.”

I’d like to remind you entrepreneurs as well. Instead of spending $2,000 to have a professional write a business plan, I’ve seen entrepreneurs farm it out to an intern, which requires 40 hours of revisions. (Per the above hourly rate, “saving” $2,000 cost $12,000.)

2. Probability vs Uncertainty

Recently, we helped a company raise $2m, but it was almost $0m. Originally, they said $2,000 was too expensive, considering they didn't know if they were going to win, so I asked. 

“What if I told you that for $2,000, I will flip a coin, and you’ll have a 50% chance of getting a Land Rover? Would you do it?” 

“Yes.”

“If I change that to 10 Land Rovers in a year, would you still do it?” 

“Yes, of course.”

We signed a contract with them and now they have ~24Land Rovers. Ok, not quite, but they have the dollar amount of 24 Land Rovers.

This is an example of Probability. There was some probability they would win. If they didn’t win the first try, we could try a second and third time.

Uncertainty is very different. Take the risk that your country will have an ebola pandemic next year. There is nothing you can do to influence the risk or to ascertain the chances. Stocks or bitcoin, too, are examples of uncertainty. You can keep betting on a stock, but the price might keep going down regardless of how many times you bet. To wit:

"I might as well just throw my money at Bitcoin if I don’t know we will win this funding for sure," an entrepreneur told me.

“It's interesting that you bring up Bitcoin.” Luckily, I had researched this before. “If you invested $2000 in Bitcoin, the most you could have returned in a 2-year period if you were completely clairvoyant would be $54,000, a 27x return.” 

“Yeah, exactly my point,” they said.

“But! What if you invested $2,000 in trying to raise $1,000,000 grant from Mastercard Foundation? Your return then would be 500x, right? And you don't have to be clairvoyant—we just have to write a good application.”

They thought this was amazing!

It gets better: fundraising is even better than flipping coins because we can influence the probability by making a better pitch or proactively meeting the funder at a conference. We can make our own luck.

3. Cost vs Value

“Your price is so expensive. [X consultant] will do it for half the price,” an entrepreneur told me years ago.

They went with the cheap option.

I heard from them last year: "We lost that grant and are looking for someone else to help us. What's your best price?" 

“The same as last time,” I replied

There is no shortcut to getting valuable work. As they say, “Cheap is expensive.” This person “saved” $1,000, but it cost them $2,000,000 worth of funding.

The best way to think about the cost of a good transaction advisor like Grant&Co is not as a cost. Though our commission ranges from 1.5% to 10% (typically on the higher side), we can usually get 50% more money or 50% better terms than an entrepreneur could get for themselves. This means the "cost" pays for itself.

Getting the best terms is the most important thing we do at Grant&Co—no one believes me until after the fact. One time, we negotiated from 50% cofinancing to 0%. Another time, we negotiated from $100,000 disbursement fees to $0 in fees. One time, the funder wanted to give the money in local currency (despite the fact that the black market would reduce the value by 20%). We got the money for our client in USD; all the other investees got local currency.

With a good transaction advisor, you are more likely to win and get a better deal. A bad deal can be worse than no deal at all.

4. “I need to shoot less,” said Kobe never.

“I tried to raise equity before. But it was a was a waste of time,” an entrepreneur told me.

“Oh yeah? How many funders did you talk to?”

“Five.”

If Kobe Bryant took 5 shots, missed all of them and decided he wasn't any good you know what he would be? 

He wouldn't be Kobe Bryant. 

You have to believe in your business. You miss 100% of the shots you don't take.

Why talk to so many funders?

“[investor x] seems good enough. I don't want to go on a wild goose chase to find other funders,” an entrepreneur told me.

This funder was a good fit. But at such an early stage of the conversation, we had about a 10% chance of winning. A 10% chance of winning $10m (as this case was) gives a great expected value of $1m, or a 500x return. But I cautioned the entrepreneur:

“Even though $10m is tantalizing, there’s a 90% chance a year from now that we lost; you’ll be mad at me and I’ll be mad at you. Do you really want to put all your eggs in one basket?”

“Well, when you put it that way…”

In poker, this is called the Kelly Criterion. You need to make enough bets. You can’t expect any single hand to win. Even pocket Aces lose sometimes

That’s why I encourage entrepreneurs to budget $10,000 or $20,000 per year, whether they do the fundraising internally, hire someone else or hire us. Statistically, if you bet all your hopes and dreams on one application, you will be disappointed.

5. Opportunity cost

“We have 1 month of runway. Can you help us raise?”

“Sorry, no. 1 month is not enough time.”

[Flash back 6 months]

A biomass company wanted help raising money. But they only had a runway for a few months. They didn’t like the idea of paying money upfront to raise capital. “We will just save money on fundraising for now. If we run out of money we will call you.”

And they had called. But the sad thing is that by the time people realize they need help raising capital, there are no more bullets left in the clip.

Entrepreneurs are eternal optimists. Unfortunately, raising capital takes at least a year, so the right time to start is when you have 18 months of cash left. This gives you a year to close plus 6 months of cash still in the bank, so you can negotiate good terms and aren’t forced to take a bad deal.

In summary

Decision-making Tools to transition from Scrappy to Strategic:

1. Value your time.

2. Know the difference between Probability and Uncertainty.

3. Cheap is expensive.

4. Budget to take several shots.

5. Raise before you’re desperate.

​Yours,

Kyle

Which funders should you work with?

Which should you avoid like the plague?

These things are hidden from entrepreneurs.

If a restaurant is great it gets 5 stars. If it has cockroaches in the soup it gets 1 star. But funders don’t have a rating system.

Until now!

We have created a funder rating website for you entrepreneurs. With real reviews from entrepreneurs.

Get insights that will help you raise millions of dollars. Listen to the podcast where I was a guest with the World Bank.

Listen now

Today we announce Sunlight.Reviews, Africa’s first and best funder rating database.

Get Access here

Have you ever wondered which funders are the best to work with? It's hard to tell on the funders’ websites. They all have smiling farmers. All the funders say they help entrepreneurs create impact.

Think of it this way. When you look on Yelp or Google Maps you see some restaurants with 4.9 stars that everyone loves. And some have 2.4 stars with reviews like “there were cockroaches in my soup.”

That kind of transparency doesn’t exist for funders in Africa at the moment. Some funders entrepreneurs say things like “[funder] was essential to our growth. We couldn’t have done it without them.”

Wouldn’t you want to have more funders like that?

So far we have over 200 funders reviewed in Africa. Without spoiling the surprise for you too much here are a few of the results.

Low interest can be expensive

Some lenders with concessional low rates are actually very expensive to work with. This is due to delays, processing fees and reporting requirements. The cost of a 3% interest loan can balloon to an effective interest rate of 40% or more. Thus, while commercial bank interest rates of 18% sound high, entrepreneurs might be better off in some cases getting a higher interest rate that has less fees, delays and management costs.

Opportunity cost is the biggest cost

Imagine you have a $1m business that can grow 50% this year with the right financing. If the funder takes 2 years to deploy the capital, this will cost you $1.25m in opportunity costs.

Opportunity cost is an insidious, hidden weight that drags down entrepreneurs.

Entrepreneurs loved their investors

At least many of them.

When we created this database, we assumed entrepreneurs would mostly write nasty reviews. We assumed we’d have to moderate against disgruntled entrepreneurs trashing funders.

To mitigate this, we separated the reviews of entrepreneurs who won funding vs. those who did not win funding.

However, to our delight, trashing funders has not been a problem at all.

Get access to funders and help the community.

Access to the Sunlight Reviews database is free. All you have to do is write an anonymous review. Even funders can access the database by providing information on their fund.

Get Access here

When working with investors you'll have to do some cross-cultural translations which go beyond language.

It took me 5 years to learn so maybe I can save you some time... useful for both foreign and African founders.

Once upon a time I arrived in Africa as a 23 year old ready to fix Africa’s rural energy (how hard could it be, right?). Among other plans, my goal was to never give a bribe. As westerners we believe avoiding bribes is sacred--it's part of our secular religion that we never think to question.

But after some time I realized, Democracy came to Africa on a boat. Before white people, Africans had a perfectly fine system that involved patronage to the local chief. They didn't need a complex system of millions of pages of writing. People back then didn't even need a writing system; they didn't have one.

Now Africa has a mixture of the traditional systems and Democracy. We call it corruption.

Years ago in Africa I joined a business group which I won’t name to protect the innocent. (The group is widely known for its strong moral values.) I was the only white guy and the youngest. 

We visited the businesses of each of the other members. This was eye-opening. They all had wonderful businesses. And giving bribes was not something some of them did. It was something all of them did. For many, strategically giving bribes was a core competency.

Bribes in the US only become important at the level of Boeing, Pfizer, Halliburton, etc but in Africa it’s part of everyday life for startup founders right from the beginning.

Now I understood better. Or I thought I understood. Because one day an African guest lecturer came to the business group who had founded and ran a huge local company. "I've never paid a bribe," he said. "The other week I was caught by the police. They said ‘pay a bribe or go to the police station.’ So I said 'Let's go to the Police station.' "

Afterwards I talked to my groupmates, impressed. "Wow! so he has never paid a bribe," I said.

They all laughed. "Kyle, of course he has paid bribes. You don't get where he is without paying bribes. Everyone pays bribes. When an African says that in front of an audience we are winking at eachother. He must be trying to raise money from some Americans so he needs to impress them with his purity. Look how impressed you are." Sure enough, he soon sold the company to an American PE fund.

"So how do you record bribes? You have to say how you spent the money in your accounting system, no?"

" 'Facilitation fees.' "

"Facilitation?" said another. "That's old school. Everyone knows that means 'bribe.' Use 'bush clearing.' If anyone asks 'where's the evidence of this bush' you can say 'It was cleared.' Or 'Pest control': if anyone asks you say 'we had a huge infestation, but now, as you can see, the pest control was very effective.' " Everyone laughed.

But are bribes bad? If you were driving a truckload of food to starving people and at a police check point they asked for $1 or else turn around and let people starve. Is that wrong? wouldn't it be wrong not to pay? What if you were bringing food to hungry people and the bribe was $10? Where is the line?

And considering the police man makes $150/month and has a wife and children to take care of, is it really wrong to pay him on a "base plus commission" structure?

And considering he paid a bribe to become a police officer.

And considering democracy could be considered modern colonialism...

This is not such a hypothetical example. It is argued (by Alex de Waal in Famine Crimes: Politics and the Disaster Relief Industry in Africa) that the genocide in Darfur was funded by International NGOs and multi-laterals like the UN; they paid Khartoum for “permits” to treat the people that Khartoum was killing. Big NGOs give bribes but entrepreneurs are held to a different standard. This article is not meant to complain about the unfairness of the situation, but merely for you, dear entrepreneur, to not feel alone.

To add to the irony, investors want companies to “synergize public-private partnerships,” and yet government contracts awarded without a bribe are as rare as a white rhino. Funders know this and yet encourage Public-Private Partnerships anyways.

Allow me to translate for the uninitiated: Don’t ask; don’t tell.

Until I became more African I realized I could never compete head-to-head in the business world with my group mates. At that time I moved to Silicon Valley to learn sales.

In a tale as old as the continent, white boy tries to change Africa; Africa changes white boy.

Westerners want Africa to transition from a traditional patronage system to democracy, as if it’s a binary thing.

But what if a third option—an authentic African governance system—is possible? One that encourages Africans’ warm, communal, capitalist nature rather than trying to make every transaction a cold process with a mountain of paperwork.

Let’s be honest, paperwork came on a ship.

Our goal is to make entrepreneurs’ search for funding as easy as finding an Airbnb by 2040. Here are our other resources with that aim:

💹African Currency Black Market tracker

☀️Sunlight Funder Reviews

🔎Esha.ai: Smart funder search

🆕 Grant Opportunities newsletter

🔁African Startup Conferences (and how to get in free)

🤐52 fundraising secrets, a neo-class delivered to your inbox

🏘️The Warren Startup House

💸Grant&Co fundraising consultancy for African co’s with $0.5-40m revenue

Raising investment is an investment—and not all investments are worth making. The default thinking is “might as well try to raise money—whats the worst that could happen?” But raising money isn’t free. It will cost at least $20,000* to build materials, go to conferences, etc not to mention your time. If you turn that into $1m+ investment all well and good, but most companies don’t. The most likely scenario for an entrepreneur is they spend $20,000, get $0 return and could have used that money in directly growing their business.

So which companies are the 1 in 10 that should raise money?

For my first company, I didn’t know anything about raising, of course. I wished there could have been a rule book. The sad thing is there kinda is a rule book but no one has an incentive to tell you: entrepreneurs are busy doing their own thing, investors don’t want to rule out anyone in the off chance they are the next Facebook, consultants want to make money creating pitch decks.

With the benefit of hindsight, here’s what I wish I knew then.

Note: this is for companies with operations in Sub-Saharan Africa.

Equity

Minimum requirements are going to depend on the phase and focus:

• Pre-revenue up to $100k: You’ll need a strong Why You? and Why Now? (if you aren’t familiar with these concepts, learn by subscribing to our weekly fundraising tips here)

  • non-software businesses 

    • up to $50k in funding for first-time entrepreneurs 

    • up to $250k for repeat entrepreneurs 

  • software business: double the figures above

• Up to $1m Revenue: 200% year-on-year revenue growth

• Up to $10m Revenue: 100% YoY growth

• $10m+ Revenue: 50% YoY growth

[As a consequence of the growth targets above, entrepreneurs find themselves in a “growth at all costs” mindset to get to the next milestone so they can raise even more equity. This is a double edged sword: if they try to grow fast, sacrificing profits, and fail to hit the next growth target they get neither investment nor profits and go out of business, despite having a model that could have been successful if grown slowly. ]

All businesses:

• Strong team. (An example of a weak team is a crew of recent college grads who have never built a biz in Africa before.) 

• Strong market. (An example of a weak market would be selling low-value products like water–to low-income customers.) 

For impact investment: Cut these growth targets in half. But keep in mind you’ll need a strong social angle (find a descriptive list under Grants below).

All the measures above assume you're operating within a legal system that works and is understandable to the investor. This removes most of Africa. The country can’t have currency controls and should have a tax-advantaged status from the investor’s perspective. With that in mind, the generally acceptable countries of registration for foreign investors are South Africa, Mauritius, US, Cayman Islands, UK, Singapore, or the investor’s home country (Dutch investors can invest in a country registered in the Netherlands, a Kenyan investor can invest in a company registered in Kenya). 

This assumes you are selling equity to grow, not to get an exit for yourself. 

And I’ll be honest with you: many times I find that companies wanting to raise equity actually have a problem with sales and cash conversion cycle (CCC). You’ve got to invest in fixing these problems first. Get more sales. Get your customers to pay you earlier and your suppliers to be paid later. This will reduce the need for investment, while simultaneously making your company more investable.

Debt

• Your business assets should be more than double the loan amount (not including intangible assets like software and goodwill). 

• Loans should be used to buy a tangible asset that will generate enough net profits to pay the interest; and the tangible asset itself can be used as collateral, except in the case of working capital, where the rest of the assets in the business are the collateral.

• Impact investors have a lower reported interest rate but higher effective interest rate when taking into account delays and onerous impact reporting. They accept more kinds of assets as collateral (for example, not just vehicles and land but also equipment). And they typically accept a longer loan tenor (up to 5 years vs 1-2 years for local banks).

Just as before, the targets above assume a legal system the investor is comfortable with. 

(Convertible debt, which typically converts to equity, should be considered as equity for purposes here.)

Grant

A company is eligible for grants (or impact equity/debt) if they're doing something that Western governments consider to be a public good. This includes:

• Low-income healthcare

• Small business loans/grants

• Humanitarian aid

• Renewable energy subsidies

• Stimulating new sectors that lead to other public goods

• Job creation programs

• Environmental conservation

• Transitioning lab research to the field

• Ambulance/fire response

• Potable water for low-income people

• Business owners identifying as members of historically marginalized groups

Basically, Western taxpayers have to be on board with the idea that they will pay for something in a developing country that their own government would also pay for at home. Other things to think about:

• The public good must be more cost-effective than the state-of-the-art—the current cost of supplying that same public good.

• The grant request can’t be more than the organization's current annual revenue or annual budget.

• Grantors typically won’t pay for things that have residual value or easy to steal: Cars, construction (very easy to steal bags of cement, timber, etc), computers, land, large processing equipment

Most Western governments don't pay for religious organizations so their taxpayers wouldn't understand why they should pay for it in another country.

Conclusion

We all know there are exceptions to the rules. The mistake entrepreneurs make is wishful thinking that they are the exception. 

Take a hard look at your business and see if you are highly investable. If not, save the $20,000-$200,000** it will cost you to raise money and spend that on something to help you bootstrap–like a sales or operations consultant or better sales team.

If you do meet the above requirements and you are the 1 in 10 companies who are investable, click here and we can set up a time to talk. 

*an investor who read this draft was surprised it was so high. In my experience, this is on the very low end of the spectrum when you include the cost of the advisor, updating the pitch deck, creating an impact report, updates to the data room and the entrepreneur’s time that could have been spent on other revenue-generating activities.

**Yes, some investors require you, the entrepreneur, to split the cost of their legal fees which can be over $500,000.

Before continuing, try to guess

• which currency is most manipulated

• how much your home currency is manipulated

I was curious so I found the black-market rate (that is, the real rate) for major African currencies. See below the spread (“manipulation”) between the official and black market exchange rate with USD:

Edit: find chart updated daily here.

• Ethiopean Birr ETB: 119.6, 110% off the official rate

• Egyptian Pound EGP: 64.4, 108%

• Mozambican Metical MZN: 75.0, 18%

• Tanzanian Shilling TZS: 2,766, 9.1%

• Nigerian Naira NGN: 1,628, 7.3%

• Rwandan Franc RWF: 1335, 5.2%

• South African Rand ZAR: 19.6, 3.4%

• Zambian Kwacha ZMW: 27.05, 3%

• Ghanaian Cedi GHS: 12.6, 1.4%

• Ugandan Shilling UGX: 3,899, 1%

• Kenyan Shilling KES: 144.04, 0.4%

In layman’s terms, this means that if the Ethiopian government says your money will buy 2.1 bags of sugar it will only buy 1 bag.

This is a major problem and essentially an “own goal” by African governments. GSK, Bayer and Sanofi have exited Nigeria due to currency manipulation. This manipulation is clearly evident from the graph of the exchange rate; no natural market is flat for 5 years and then jumps suddenly:

This manipulation by African governments gained personal meaning for me last year. A funder who had spent 15 months saying they are going to invest $800,000 suddenly said they will disburse the $800,000 investment…in Mozambican Metical…At the “official” rate. $800k in MZN is worth only $630k at best. And even then we’d have to go through a cryptocurrency exchange which adds new risks. This “impact” funder is jeopardizing the project and the livelihoods of 1,800 smallholder farmers.

Don’t play games with farmers. It’s gross.

In April 2023 I asked, when will Africa get the Green Revolution? Well, this is part of the answer. The countries with the least currency manipulation are most likely to retain talent and capital.

But until then we are offering a free sneak peak.👇👇👇

Access 4,000+ African Funders

For access to extra data including funding amount, previous investees and our notes on what the funders actually want to hear, for a limited time we are offering the Premium version for $100.

Are conferences a waste of time?

It’s a perennial question. And, if you go to the wrong conference, or for the wrong reason, then yes, they are a waste.

BUT!

If you are raising money, looking for partners and C-suite talent I have not found a better way to meet with 20-50 useful people in 48 hours.

Here is a list of conferences that are actually good for African SMEs/Startups!

Show Me Top Conferences

Take a look and make your conference plan for the year.👆👆👆

I just attended AESIS and SuperReturn conferences in Cape Town, South Africa. Here are my takeaways that will save you lots of $$$ and a week of your time:

• Monthly Investor Updates. Investors repeatedly complained about chasing down entrepreneurs for updates. One asked *me* if I had any insight on whether their investee was bankrupt or not. (I suspect they are, but I didn’t say that.) Investor updates don’t need to be fancy. Here’s a template

• Serial entrepreneur (~55 years old) on what he did differently the 6th time: spent $20k on market research before starting the company. He said it saved them millions building the wrong product, and in 3 years, they have reached $7m in annual revenue. The market research included words that turn potential customers off, the underserved people, and many qualitative factors related to their buying decisions.

• Most impact investors can’t fund primary agriculture because it’s too much of an ESG risk. The farms could employ children, e.g., 17-year-olds, and that’s child labor. Sorry, farmers are too poor to be helped, it seems. Farming is considered a category A ESG risk.

• When I mentioned Series A to one investor, he had an allergic reaction: “The moment I hear Series A and Series B, I know the company is overpriced.” It is essential to distinguish between VCs that invest in Series X funding rounds priced at some multiple of revenue and PEs that target “SMEs” with slow, steady growth priced at 5-10x EBITDA.

• Need an exit. Some investors say they are only investing in companies with a clear exit opportunity, which usually means potential strategic acquirers are already waiting in the wings.

• The weak hands are still being shaken out with Sendy, Twiga, Jumia, Copia, Marketforce, and Komaza on people’s lips, and they expect several others won’t make it.

• One investor brought in someone specifically to work with their portfolio companies on “Exit Readiness.” Three things are needed to exit: a list of potential acquirers, internal house cleaning to have sound systems, and cutting costs with uncertain or long-term payoff. There are 4 potential acquisitions: sale to strategic or PE, management buyout, IPO and secondary sale (i.e. early stage investors sell their shares to new investors in an over-subscribed round). IPO investors have concluded that is impossible in Africa. Even Jumia, which is listed on the NYSE, doesn’t have enough liquidity for investors to exit, so they still aren’t able to sell their shares. Investors complained that Jumia had a poor company culture, with high staff turnover, which made them bearish on the already unimpressive financial metrics.

• Non-investor related: 99% of all AI uses Neural Networks, even though there are many other ways to do AI. We know there are much better ways to do AI: neural networks need to see 1,000 pictures of broccoli to identify broccoli correctly, but a human needs only a few. Further, we don’t know how neural networks work, which leads to predictability problems. A new AI would be more predictable and use 100x less energy to train.

• I hosted a Dragons’ Den event: Our Dragons’ Den event attendees said it was the best session they had attended. Getting honest feedback and hearing how the investors thought about the opportunities was illuminating for the entrepreneurs. One entrepreneur learned that they were raising too little money which was a red flag for investors.

• USAID won’t fund construction grants for two reasons: 1. easy to steal bags of cement, etc and 2. They experienced lawsuits for projects they funded in Afghanistan and elsewhere where the grantees had construction disasters and then sued USAID for having funded the project. No good deed goes unpunished. So the result is, because USAID has a target painted on its back and won’t fund otherwise great construction projects, the whole ecosystem loses because of a few frivolous lawsuits.

• USAID and development programs often DON’T want to market the project results to their home countries for the good deeds they do. Raising American awareness might create the appearance that the US government is spending more money overseas than helping its own citizens at home, despite less than 1% going to USAID. Telling USAID you’ll raise awareness for them in the US contradicts their goals.

• GPs seem to hate fundraising. They were all complaining about how DFIs were tight-fisted with money, which they called “T-Rex arms”: arms too short to reach their pockets. I couldn’t figure out what the root cause was. Presumably, GPs didn’t understand the DFIs’ needs.

• I’m increasingly convinced money is a commodity business; the best entrepreneurs will get the capital they need. Funds are generally undifferentiated, with some LP DFIs short-circuiting the funds and going straight to entrepreneurs. What’s differentiated is company building. Often, money is only the first problem an entrepreneur has to solve. Then, entrepreneurs have to increase their assets’ capacity factor from 25% to 85%, remove blockages in their sales funnel, create processes, replace their Excel accounting system with Xero, and hire mechatronics technicians so their CEO isn’t fixing equipment anymore. There is a huge opportunity for all the work after a company receives the money. Throwing money at a problem often doesn’t solve it; it often makes it worse. 

• Massive disparity between entrepreneurs and investors. There was an investor conference (SuperReturn) and an entrepreneur conference (AfricArena) right next to each other. The budget for the investor conference was about 20x higher. One investor complained that some entrepreneurs were paying themselves more than investors were getting paid. But is that such a bad thing since entrepreneurs are doing all the work on the ground? Entrepreneurs are still second-class citizens, and investors will be in for a surprise as capital becomes more of a commodity.

But that’s just the start

I’ll walk you through 9 items that are overlooked.

1. Cash runway to complete the fundraise

2. Bus factor of 2 or more

3. Operational processes documented

4. Organized documents

5. Storytelling and presentations

6. Coaching (and maybe therapy)

7. Accent, voice and culture coaching

8. Sales skills

9. Realistic company valuation

Most people don’t know what investor readiness truly is because many of these topics are politically incorrect or uncomfortable.

As much as entrepreneurs complain (justifiably) about investors, entrepreneurs usually don’t have the pieces together to attract investors effectively.

Runway

You must have 6 months of runway to raise capital. Or better yet, be profitable. This is because it takes 6 months MINIMUM to raise capital. When someone told me this as an entrepreneur, I thought they were joking. No, this is real. 6-24 months, with numbers closer to 24 months being more common. If you don’t have 6 months of cash you won’t be able to raise money. No one gets on a sinking ship. 

If you don’t have 6 months of runway, defined as cash in the bank divided by monthly burn rate, then fixing this is the first order of business. And it can be painful.

1. Cut any pet R&D projects.

2. Do a layoff. Cut anyone not working on revenue-creating projects in the next 6 months. If someone is working on a rebrand, cut that function. If they are upgrading the infrastructure, cut that function. Better to cut deep the first time than have to cut several times. (I speak from experience.)

3. Reduce pay to your management.

4. Ask senior leadership to take deferred payment. Or move them to part-time.

5. Anyone getting comp in equity, like a chairman/co-founder, shouldn’t get paid cash.

6. Former founders not doing any work shouldn’t be paid at all. (Yes, I’ve seen this.)

7. Renegotiate your lease (the landlord would rather make a little less than have to find a new tenant).

8. Renegotiate your payment terms. Ask for longer payment terms to your suppliers and shorter payment terms with your buyers. If some buyers want long payment terms, cut them even if they are willing to pay more.

9. Ask your current investors for a bridge loan. Better to do this earlier than later. And then keep asking them. No reason to be shy. There’s no downside to them saying no. The only cost is to your ego.

10. Have the founders put in a loan. This can have interest and be at the top of the preference stack. But adding cash will make the company more attractive.

11. If a shareholder wants to be bought out, now is the time to do it when the expected share price is low.

12. Factor your invoices, if possible.

13. Sell any assets that are not producing revenue.

14. Look for alternate ways to generate revenue, like leasing out the half of your warehouse/office you aren’t using. Take on a part-time consulting gig.

15. Cut product lines that aren’t generating cash flow (different from profitability).

This may sound harsh but, as they say, a crisis is a terrible thing to waste. Now is a great time to clean house.

Bus Factor 

If you got hit by a bus what would happen to your business? Do you have systems in place that would keep on humming? The bus factor is how many people would need to be hit by a bus to kill your business. To raise money, your Bus Factor should be 2 or more. 

Systems

Develop processes for every key activity. Investors will often want to see a handbook of how you run your operations. Then they’ll want to see that it’s implemented. Typically, a central part of having systems is to have ERP software (Enterprise Resource Planning).

Documents

Save all your docs in an organized place. Do your docs look like the wardrobe on the left or the right? 

Which would make a better impression on your guests visiting for the weekend?

You should have a Data Room folder which is organized by Financial, Legal, Operations, Impact and Partnerships

Storytelling and Presentations

“300,000 young girls are left with their mean stepmothers and are prevented from having any fun. Every year. This is contrary to SDG7.”

Imagine that’s how Cinderella started. It wouldn’t work. No one would read it.

And yet, that’s how most entrepreneurs talk about their businesses.

1 death is a tragedy; 1 million is a statistic. Stop talking in numbers and start talking about people. Once people are emotionally invested, then you can start talking about the big picture.

If you haven’t already, sign up for Toastmasters to learn how to present. It’s in nearly every major city in the world, including Africa. (In fact, the best Toastmasters I ever attended was in Nairobi.) Many decent entrepreneurs are bad at presentations and storytelling. Imagine how great they could be…

Coaching

If Michael Jordan needed a coach (he had several) and Lionel Messi had a coach, then probably you and I could also benefit from a coach. There are a lot of tricky decisions about who to hire and fire. Having someone to bounce ideas off of will keep you sane. If you make $1m-$10m worth of decisions in the next year, it’s worth paying $3000 for a coach. Here’s how I found the right coach for me.

If you think there might be something within yourself holding you back, consider reaching out to a therapist to help rewire disempowered ways of thinking, bad habits such as procrastination, or other deep-rooted issues that may be infiltrating your business.

Accent, Voice and Culture Coaching

If the investor can’t understand an entrepreneur’s accent–if they can’t communicate–they can’t invest. It isn’t only about language but also tone and nonverbal communication. There are many books on understanding people from different cultures. Before going to China for business I read a book on Chinese business culture to learn customs I didn’t even know that I didn’t know. 

For example, an entrepreneur that shows up on African time shouldn’t expect to raise funds from an American investor who expects meetings to start on time. You’d think I’m stating the obvious here, but showing up late and unprepared is common. If the meeting is on Microsoft Teams and you haven’t used Teams before, then showing up “on time” is too late to solve any technical challenges. You need to try a test run on Teams the day before.

Sales Skills

Raising money is sales, and like any other skill, it takes lots and lots of practice.

I set up a meeting for an entrepreneur with an investor who was genuinely excited about this particular industry and had $1m to invest. I thought, “This is going to be perfect. What could go wrong?”

• First, the entrepreneur never let the investor introduce himself but launched straight into the pitch.

• When the investor tried to ask questions the entrepreneur kept interrupting.

• The entrepreneur never asked the investor a single question about the investor’s interests and needs.

• Even though I prepped the entrepreneur that the investor was only interested in one of his two business lines, the entrepreneur only pitched the other one.

After the meeting, when I gave the entrepreneur feedback on how we could improve future meetings, he responded, “Well, if that investor wants me to lick his boots, I don’t want him anyways.” There’s a big difference between licking boots and letting an investor ask questions. We don’t work with that entrepreneur anymore.

Not everyone has EQ (emotional intelligence). But the good thing about EQ compared to IQ is that EQ can be learned and improved upon. A program course like Landmark or Authentic Relating could be beneficial.

Have a Realistic Valuation

As a favor for a friend, I talked with one entrepreneur raising capital for her beauty company. She said they were doing $150,000 in annual revenue and were unprofitable after 7 years of operations. She wanted to raise $3m for 25% of the company. There was no way they had a $9m pre-money valuation. On the call, she asked, “So, are you ready to help us raise $3m?” thinking I would beg them for the opportunity. 

“You know, I think it’s not a fit for me, but let me know how it goes.” 

As you run through this checklist on investment readiness, what’s one thing you can focus on this week?

You may find my email response to him useful:

You have the most common, and most life-threatening, business problem in Africa. It’s like pushing a boulder up a hill, if the boulder grew bigger the higher you pushed; working capital is not like startup capital. The more successful you are, the more you grow, the more you need.

Here are the potential solutions:

• Better terms

  • Get shorter payment terms from your buyer (120-day payment terms are obscene and a huge red flag that the buyer isn't managing their cash well and you risk getting paid never)

  • Find a better buyer.

• Pay your way out of the problem

  • Work with an invoice discounting company like IMFact, FACTS or YoFinvoice. This costs ~3-7% per month on the value of the invoice. Purchase Order financing is available in some markets, but I don't know of it in East Africa.

  • Line of credit. For this, you will need collateral in the form of land or cash in East Africa. Alterfin, Rabo Foundation can use alternative assets as collateral.

  • If you don't have collateral, perhaps you have a friend who will lend you the money due to your personal relationship.

  • Have a massive social impact that USAID or Gates Foundation will give you a loan guarantee (very rare and costly to acquire the guarantee; you will still need to pay interest)

• Band-Aid solutions (that don’t address the root cause)

  • [The entrepreneur suggested upgrading their machines so they can export.] Better cleaning machines could help you get paid in USD for export. But you still have the same working capital problem. Few capital providers will fund machinery for a business that has an underlying working capital problem.

  • Raise Equity (expensive solution for working capital as you will have to raise more equity when you outgrow your working capital)

  • Free up money elsewhere in your business. For example, Asset Finance for your vehicles is easier to obtain than working capital.

• Structural Change

  • Become vertically integrated and mill your own flour. Sell to small shops on a cash basis.

  • Develop a complimentary business that has a negative cash conversion cycle (CCC). Insurance is an example: you collect premiums today and payout claims months later, if at all. Warren Buffet famously used this to finance (part of) Berkshire Hathaway’s investments. Equipment leasing, Subscription, and Event Organizing are other negative CCC businesses. Marketplaces like Amazon.com collect money today but often take weeks to pay the merchants. Amazon has a CCC of -27 compared to Walmart, whose CCC is 4.

  • Pay farmers on a base plus bonus schedule (like cooperatives do for tea farmers) so that you only pay the full bonus once you receive payment from your buyer.

  • Create a premium grain product that buyers must pay for in advance. (We have one entrepreneur who gets paid for their agriculture exports before they even ship them because the product is in such high demand.) I can imagine a premium aflatoxin-free flour that sells to rich households—who wants to stunt their kids with aflatoxin?

  • Create a psychological benefit of pre-paying. Our client Agro Supply sells seeds to smallholder farmers on layaway, like a savings plan. They collect the money in advance, buy the seeds from the supplier and then deliver the seeds to farmers, for a negative CCC.

  • Go into a different business with a negative CCC. We work with a dairy company. The milk co-op delivers to our client daily but the client pays the dairy co-op at the end of the month. Crucially, this dairy company doesn't sell to supermarkets that pay in 60 days, but instead to local shops that pay cash, resulting in a negative cash conversion cycle (CCC).

The easiest option is to negotiate better terms/find a better buyer. For the price of paying for working capital ($500k * 20% interest = $100k per year) you could hire several sales reps to develop relationships with better buyers so you are not at the mercy of one buyer and you have negotiating leverage.

The strategic solution is to pivot into a business with a short/negative CCC.

Not all great companies have favorable working capital fundamentals. Tesla, biotech companies, movie studios, Apple, oil drilling all require LOTS of working capital. However, note that these companies have higher margins than grain aggregation.

Hope this helps.

What’s the Green Revolution? From around 1960 to 2020, some countries were able to 5x their crop yield—from developing country levels all the way to developed country levels. 

The Green Revolution happened in countries like China, Indonesia, Pakistan, Malaysia, Philippines, Mexico and South Korea.

This is incredible.

What happened, exactly? And why do some countries like Kenya and Nigeria remain behind?

Let’s start from first principles. Is there anything inherently better or worse about African land that makes this the case? 

Sunlight:

The real limitation of land productivity is how much sunlight it gets (that is, how much energy it receives).

Let’s look at an insolation map:

Source: globalsolaratlas.info 

Africa gets much more sun than places like Japan or Germany. About 50% more. So it could, theoretically, produce 50% more crops, right?

Ok, so sunlight is not a problem in Africa.

Let’s check if rainfall is a constraint.

No, there’s plenty of rain in Sub-Saharan Africa–the same or more than Europe, excluding Somalia and Namibia.

Note that rain at different latitudes is not quite an apples-to-apples comparison. Near the equator the ground loses more moisture due to evaporation from more sunlight, if it is not mulched. Nevertheless, Sub Saharan Africa doesn't have water as a constraint.

Our readers in Kenya might be interested to see that Kenya is right on the rain/desert border.

Something is weird here:

Why does Japan, a country blanketed in snow much of the year, have 5x higher crop yield than Kenya, a country with nearly year-round sunshine, rain and a warm climate?

China starts with the same productivity as Kenya in 1960 and reaches Germany’s land productivity by 2018. Kenyan crop yield in 2018 still hasn't reached the level of Germany in 1961, ~60 years behind.

And that’s not to pick on Kenya--other countries in Sub Saharan Africa have similar yields or worse.

Why hasn’t the Green Revolution reached Africa?

1. Fertilizer

Green Revolution countries have increased their fertilizer usage–Africa hasn’t:

As a side note, these Green Revolution countries are rather dependent upon imported fertilizer in most cases. Likewise, many African countries don’t have access to natural gas to produce fertilizer on their own. Therefore they depend on imported fertilizer and natural gas, often from Russia, which lays the stage for geopolitical conflict in the future if de-globalization happens. (See Peter Zeihan for more on deglobalization.)

Kenya has just made an agreement to install the first nitrogen fertilizer production plant in East or Central Africa, which would be a huge step forward for Kenyan agriculture. It would use geothermal power

2. Mechanization

Green Revolution countries have increased their Farm Mechanization.

Traditionally, Africans didn’t use draft animals for field work. Cattle and horses are susceptible to sleeping sickness spread by tsetse flies that live in the wet areas meaning beasts of burden were not possible in West, Central and Southeastern Africa. The cattle-rearing regions of Africa are the areas without tsetse flies. And without much water. Thus the only places where draft animals were possible in Africa are often the exact regions without enough water for intensive agriculture:

Because there were few draft animals one could not cultivate much land and there was a surplus of land compared to labor. Thus, land wasn’t a very valuable commodity. The transition to mechanized farming, from human power to machine power is more of a quantum shift than in other parts of the world that had animal power as an intermediate step. Cultural systems, such as communal land, adapted over tens of thousands of years when land was plentiful have not had time to adapt in the last 60 years to the new reality where land is scarce. Source.

Africa could leap frog traditional plowing. In the last few decades a technique called no-till has been developed which avoids plowing and plants seeds directly into the old crop. This is a permaculture technique that most industrial farms in the US use. No-till causes minimal disturbance of the soil, preserving micro organisms and soil moisture while utilizing smaller tractors. So far no-till has not been adopted anywhere in Africa as far as I know.

 3. Irrigation

Green Revolution countries have increased their irrigation

Note that the US has less irrigation than Green Revolution countries, but still 10x more than Nigeria and Kenya.

Here’s irrigation at a more granular level where the difference between northern India or northeastern China is very different from irrigation in Africa (2000):

Of note, one entrepreneur we work with who has 3,000 acres under cultivation found that mulching was just as effective as irrigation for their crops, increasing yields by 32% in both cases. There is an opportunity for developing countries to leapfrog technologies that are expensive like irrigation. Instead farmers could potentially move to regenerative agriculture techniques like mulching to supplement irrigation.

However, irrigation pumps are only a small cost of irrigation. Unless there is surface water like a stream (very rare) farmers need to drill a borehole. Thus reducing the cost of a $1000 water pump doesn’t mean much when the borehole costs $10,000. Boreholes in Africa cost the same or more than boreholes in the US, despite generally have 0% import duty on borehole drillers and cheaper labor.

Why?

There is a cartel between the borehole drilling companies and the government Water Resource Authorities. To obtain drilling approval the driller must pay a kickback to the government authority. Until the corruption is rooted out or someone figures out how to circumvent the WRAs boreholes will remain prohibitively expensive.

4. Green Revolution Countries have improved their seed quality. 

Green Revolution countries like Pakistan, Philippines, Mexico, India, Brasil, Vietnam, Indonesia and China make extensive use of improved seeds. Biotech crops that would reduce the need for pesticides and increase nutrition like Vitamin A enhanced rice have been largely banned in Africa:

Some people are against GMOs for ethical reasons. Regardless of your beliefs, the reality is  Western countries and Green Revolution countries have brought a gun to a knife fight. (Uganda and Kenya have recently ended the ban of GMO seeds, the president of Kenya citing his background as a scientist in support of the pro-science change. The High Court overturned the end of the GMO ban so GMOs are again illegal and Kenyan crops are again uncompetitive.)

There is even a lack of access to non-GMO improved seeds like hybrid seeds:

5. Roads

Paved roads per agriculture land is also much less in Africa than Green Revolution countries, increasing transport prices. We often think of countries like India and Kenya as about at the same level of development but their road development differs by a factor of 50.

Not only that, but even on the main highways transport is roughly twice the price of Green Revolution countries:

Source: World Bank

One can imagine that on rural roads the cost of transport is even greater:

Indeed, that is the case. Last-mile collection of produce is by FAR the most expensive part.

Recently, the momentum to build paved roads has increased in Africa, a sign of hope:

But at this growth rate, Kenya won’t reach Pakistan's current road density until 2130. And Kenya is building roads faster than almost any other Sub-Saharan country.

However, poor roads are only a small part of the problem. The largest delays are not caused by roads but by bureaucracy: ports and border points. This reduces the capacity factor for trucks, which are expensive assets.

What can an entrepreneur do about roads? Only the government is allowed to improve roads and the quality of ports, after all.

A Tanzanian honey company we work with makes their own plastic jars at their honey processing plant. Instead of shipping containers of empty jars many times, they buy a new mold once. Then, the company located as much of the factory in rural areas as possible so that light processing happens at the collection centers, reducing the amount of last-mile transport required.

One major difference in the cost of transport between South Africa and Malawi, for instance, is the cost of tires. Is it possible for countries to make their own tires?

6. Poor government policy

Government policy in Africa, while often well-intentioned, discourages farmers from optimal production.

Governments, responding to voter pressure to reduce food costs, often fix the price of staple foods. But this has the opposite of the intended effect: if farmers don’t get paid at the market price, then they will produce less, which creates a high black market price.

Often, governments provide a fertilizer subsidy, but this disproportionately helps larger farms (is regressive) as the unit cost to deliver 10,000 bags of fertilizer is less than the unit cost to deliver 10 bags of fertilizer.

Kenya and other countries often ban the export of crops, with the idea that it will keep more for themselves, but if there is a lucrative export market, this prevents farmers from meeting that demand, further reducing production.

In an effort to reduce the cost of food products, governments eliminated (or reduced) import duty on some staples. But doing so means local produce cannot be competitive. Take the Kenyan wheat industry. Whole wheat kernels have a 0% import duty, preventing any local production. Meanwhile, wheat flour has a 60% import duty, which prevents anyone from importing the flour. This has the effect of protecting the local wheat flour miller cartel and inflating the final cost of wheat flour to end consumers.

If we know how to improve yields, why don’t African farmers do it?

Risk

The African agriculture system and culture is not optimized for production, but rather optimized for reduced risk. Ghana, for example, has experienced 3 major droughts. The first two before colonization did not result in famine as the people relied on drought-tolerant, low-production millet. The third major drought from 1890-1920 caused famines as Ghanaian farmers had transitioned to high-producing, drought-susceptible maize.

The objective of smallholder farmers is not to become rich but rather not to starve, oftentimes.

If they want to become wealthy there are easier ways to do that like get a job, become a politician, be a vegetable broker, etc.

Reverse economies of scale

Typically, economies-of-scale lead to increased efficiency, but aggregating land into larger farms typically doesn’t increase incomes for smallholder farmers. Productivity at 2 hectares is roughly half the productivity of 1 hectare, canceling out any benefit of having a larger farm:

Source: The economic lives of smallholder farmers 

This makes sense. High labor intensity crops like tomatoes can produce more income per acre than broad acre crops like maize. Moreover, without mechanization, increasing the acreage of maize with the same amount of labor reduces land productivity.

Until there is mechanization there is not much benefit of having larger farms.

Culture

Smallholder farmers are subsistence farmers. That is, very little of what they grow is for sale: 

And what they do sell makes up a small percentage of their total income:

This means that most farmers in developing countries are not professional farmers. They don’t sell much of their crops and they don’t depend on their crops for income.

Politics and Governance

Some Africans I share this data with say the real problem is the politicians who make selfish decisions.

Indeed, Africa governance is quite behind Green Revolution countries. But importantly, Africa’s governments are dividing into two groups: Growing Africa and Stagnating Africa.

Growing Africa (mainly attributable to Kenya and Rwanda) is now just about 25 years behind Green Revolution countries.

More concretely, let’s say you are starting a fruit-processing export company. How much more difficult does the local government make your work as an entrepreneur?

A Kenyan fruit exporter would spend 662 days tied up in red tape vs. only 168 for the same business in Malaysia.

Kenya is far behind, but how far behind?

Malaysia established a special task force in 2007 to improve government systems for better business efficiency…and it seems to have worked.

Education

Let’s look at the root cause of poor governance: people are the ones who elect the politicians (and tolerate rigged elections).

Maybe once enough people receive a certain level of education they will choose better leaders and hold them to account. Indeed, the data suggests better education leads to better economies. In particular, better math and science education seems to lead to higher income. Better agriculture might be the intermediary step.

[Note: it could be argued that 1.) correlation is not causation or 2.) the reverse correlation might be occurring—higher income might cause higher test scores. Those are both partially true. However, that STEM education drives income can be back tested by noting that resource-based economies like Saudi, Kuwait, Bahrain, Botswana and South Africa are outliers.]

Thus a root cause of corrupt politics and thus low agriculture yields might partially be attributed to low quality STEM education.

Kenya has only managed to reach the literacy level of Peru in 1970 or Malaysia in 1990. Kenya has one of the highest literacy rates in Sub-Saharan Africa.

To put this in perspective, at independence in 1964 Kenya had 20% literacy. The voting public of the United States had a literacy rate of nearly 95% in 1789 for the first presidential election. (Voting public was landowning white men, some women and some blacks, at the time.) A lot of the supporting infrastructure (e.g. literacy) needed for good governance and a green revolution has not been present in Africa until very recently, if at all. While Alexander Hamilton could write 51 Federalist Papers on the finer points of good governance to reach the average voter, Jomo Kenyatta could not.

Africa is due for a green revolution. 

• Kenya is installing the first fertilizer production plant in East Africa, powered by geothermal energy. 

• Organic fertilizer AT SCALE is coming up from Regen Organics and Chanzi. 

• Lease-to-own models enable tractor ownership like Hello Tractor

• The prices of solar powered irrigation pumps are falling from the likes of Futurepump

• Software-first distributors are optimizing farm-to-market transport, reducing costs like East Africa Foods

• Roads are improving.

• Local pesticides are produced by Kentegra to reduce reliance on imports.

• Older farmers with a subsistence mindset are aging out. Young farmers and expats have fresh ideas like Cinch’s mosaic agriculture. 

• Off-takers, keen on supporting farmers for a long term relationship, rather than extracting as much as they can, are popping up like Good Nature Agro (Zambia) and Agro Supply (Uganda)

• European and American investors see Africa as a great opportunity to create the next Berkshire Hathaway like Africa Eats 

• The US government has revamped its funding with USAID ATI and DFC

We know how to increase yields. A lot of the necessary factors are lining up. But many gaps still remain, waiting for entrepreneurs and entrepreneurial sector actors:

• Founder-friendly governments in Africa

• Reduced government interference in market prices like sugar, cereals

• Funding for CapEx to build processing facilities (generally debt, equity and grant funders all dislike CapEx, but who is going to pay for the processing facilities?)

• A success-oriented accelerator for agriculture in Africa (along the lines of Y combinator, rather than impact-oriented accelerators)

• Rural logistics for inputs and offtake

• Locally made—and serviceable—tractors and borehole drillers (everything is imported currently)

• Proper drying of cereals to avoid aflatoxin 

• Storage to avoid feast/famine cycle

• Universal access to improved seeds

If you are an entrepreneur or eco-system actor, there’s a lot you can do to bring the Green Revolution to Africa.

I received feedback that you wanted to know what questions to ask investors in your pitch meetings. Here are some ideas for you.

For some background, a "pitch" to an investor is a misnomer. It's a two-way street where the entrepreneur needs to vet the investor as much as they need to vet you. Do they add value? A great way to do this is to ask questions. Not only that but asking questions is THE most important sales skill.

If you remember one thing from this article

…everyone has a problem. And they usually are afraid to tell you. If you can figure out what their problem is you can help them solve it. And if you solve the problems of people who control lots of money they will give some of that money to you.

An investor’s problem could be:

• They got burned by a company that was also in your sector. Now they are wary of the whole sector.

• Their partner complains they always bring b2c deals instead of b2b startups.

The only way to find out what their problem is is to ask questions.

Questions at the beginning of the meeting

1. [based on research I did before the call]: I understand your fund is $100m, with a target ticket size of $5m+ for agribusiness in East Africa, is that right? (Then they can correct me. This is more efficient than saying “So, tell me about your fund.” An open-ended question will make them go on tangents, wasting time. And will also look like you haven’t done your research.)

2. You’re busy. Why did you decide to take the meeting with me? What do you like about our biz? (This helps me know what aspect of our biz to focus on. It also creates consistency bias: if they say something nice about us they will tend to reinforce that in their behavior, subconsciously.)

Questions during/after pitching

1. How can you see this company fitting into your portfolio? Are there challenges? (for example, if they backed a competitor already)

2. What is the one thing you think I’m underestimating or being naïve about?

3. Do you look to add more value than money? (They will likely say “yes” to this.) Great, since your fund adds more value than money, where do you see your fund adding value for us? (This leads nicely into an opportunity to ask for advice later. In a follow-up email, you can say, “I know you said you’re value add is in helping with expansion. We are thinking of expanding to Uganda. Have you worked with companies expanding there? Based on what you know about our business, what advice do you have about a, b, c and 4?” Then you get to see how thoughtful their responses are and if you’d want to work with them.)

4. Have you seen somebody try this business and fail or succeed in the last ten years?

5. Are there any companies you think it’d be natural for this company to partner with that you could make intros to?

6. Do you think the niche we are targeting is a rising tide?

7. How do you assess the exit opportunities for this business? (they can’t invest if there is no way to exit)

8. Which of our traction metrics are most/least compelling?

9. What experience have you had with companies that try to distribute on the channel(s) we use? And what were their lessons learned?

10. On a scale from 1 to 10, how much do you think we have founder-market fit and founder-product fit?

11. What are the skillsets we need to succeed?

12. Just meeting me, do I feel like the right kind of person to make this business work?

13. What is your experience investing in [my sector]?  Which investments worked out? What are your lessons learned?

14. Do you have any competing investments?

15. How is your fund structured? (worth reading this on VC funds and investor psychology)

    1. Who makes the decisions?

    2. How long is the fund? Typical deal size? Fund Size?

    3. What are your investors/LPs like? And what are they looking for?

16. What sectors or trends are you excited about now?

At the end of the meeting

1. Is it ok if we add you to our investor newsletter so you can stay up to date with our growth and notable achievements?

2. What’s the process from here?

3. Do you need any more info from me?

4. Can we schedule another meeting? (Ask to schedule a follow-up meeting the same time next week/month/quarter depending on your fundraising timeline.)

5. [If you do get a positive indication]: What’s your decision-making process like? Do I need to meet the other partners? What’s the next step?

General guidelines for talking to investors

1. Be transparent and honest. Investors will not invest if they pick up signals of lack of transparency or honesty. This is part of the risks that they’re trying to reduce. Be careful with games (like “round closes today”) or small exaggerations (like “we have a meeting with a senior partner” at a fund where you’re about to meet with an associate). Don’t be afraid to admit what you don’t know.

2. Show speed and commitment: Return emails fast, provide requested data immediately, be persistent during the fundraising process, and be available to physically meet if possible.

3. Show seriousness and professionalism. Answer questions seriously, and provide the research you conducted when relevant. Make sure everything you deliver leaves a great impression.

4. Be calm. Accept all questions with love. Don’t complain about the process — if you don’t like it, disengage. Don’t tell them what you think about the process. Be nice when you get rejected, because it could matter when you meet them again.

5. Don’t be arrogant. This can happen when things are going well, but it’s important to stay grounded and be nice. Remember that all startups have ups and downs, and you will need the investors tomorrow.

Information in part from NFX and Verdant

A book that might be very helpful to you on how to ask questions to uncover hidden information is Never Split the Difference, about a technique developed by an FBI hostage negotiator.

For the sake of brevity, I’m not going to sugar coat things. Here goes…

StreakCRM

Use this to manage conversations with investors. Raising capital is fundamentally a sales process and every sales process needs a CRM. Streak sits right in your gmail inbox. It’s free for the first account and $59/month thereafter. For anyone not ready to spend $59 then consider you might not be ready to raise $1m. (I don’t make any money from Streak; I just think it’s the best.)

Cringe/Embrace the suck

At first you will say cringey things to investors. Keep pitching until you are less cringey. My friend David Kadavy calls this Embrace the Suck. Initially you will suck. This is true of everything you do at first. Over time you will suck less. Eventually you will suck so little you’ll actually suck less than other people, which is also known as “great.”

Create an investor FAQ

Investors will ask lots of questions. Make their life easier by sharing a list of previous questions that were asked with your detailed answers. This shows you’re prepared, it will save them time thinking of smart questions and will make your life easier to have pre-answered questions. I do this in google sheets to make it easy to share and update.

Get back up again

Get knocked down 9 times; stand up 10. (Not sure how the math works on this. More motivational than anything else.)

I always try to remember that more important than giving constructive criticism to entrepreneurs is encouraging them to try again. If they keep on getting up it is inevitable they will get better.

Do the reps.

This is a mindset thing. Supposedly JK Rowling got rejected by 100+ publishers before she found a publisher for Harry Potter. Expect to do 100+ investor calls/conversations before raising your investment. Make the number of times you get rejected be the objective, not the money raised. Get rejected every day. Keep doing this and success will be inevitable.

We help entrepreneurs get these reps in by setting up calls for them so that every week they have calls in their calendar with investors. You can do this yourself as well. Here’s how we increase rejection:

1. We do the initial screening. Of 100 investors we reach out to 70 reject us.

2. Then we send you the 30 best investors of which probably 70% will reject you.

The thing is you only need one. So if your ego can handle 99 rejections you will be successful.

Use Google Domains and hosting and GSuite for emails.

Raising money is an email inbox sport, so to speak. Why use outdated running shoes if you want to run the fastest?

Microsoft Outlook is a dinosaur. Also, it doesn’t work with StreakCRM. Using Google IT stack for everything makes debugging any IT issue easier as there are lots of support articles.

One time we lost funding because the entrepreneur’s inbox went down and we didn’t get notifications from a funder that they needed more info—a terrible way to lose.

Use Google Docs

On a second date last week we got into a lively debate about whether Microsoft Excel or Google Sheets was better. (Trust me, I have the best dates.) I conceded that Excel is technically better in possibly every way. However! That’s not what’s most important. Humans are at the top of the animal kingdom not because we are the fastest, have opposable toes for climbing, can swim the best or even have the most brain cells (elephants do). We are not technically superior. What makes us the best is that we can collaborate with individuals outside our line of kinship. Excel, and Microsoft Office in general, makes collaboration difficult; you have to download and then email and deal with conflicted copies. Meanwhile, Sheets and Google Docs are designed for real-time collaboration. 

The result is that entrepreneurs using Office have tons of back and forth. Time is wasted. Time is money. If you switch to Google Docs the turnaround time on DD (Due Diligence) docs can halve.

Just the other day I was working with an entrepreneur who not only used Power Point but had their designer create slides in proprietary software, then import to powerpoint. So now every time we need to update one number or fix one typo we have to go back to the designer. Instead of fixing things in 5 seconds it now takes 5 days (not kidding here). With this kind of workflow, how likely is this entrepreneur to raise money?

Data Room: Get your docs in a row

If an investor says they are interested and say could you share your data room but then it takes the entrepreneur 1 month to get all the docs together, this is a bad look. The investor starts to wonder “Is this entrepreneur serious?”

Just build it. Here are the docs it should have. 

Best to organize in folders in a logical way so that investors can easily find things:

• Finance

  • Financial Model

  • Pitch Deck

  • Business Plan

  • Audited Accounts

• Legal

  • Certificate of Incorporation

• HR

  • Organogram

  • HR Policy

  • LinkedIn links for key staff

• Operations

  • SOPs, etc

• Impact

  • Impact analysis

• Media

  • Photos

  • Videos

  • News articles about your company

Why Now? 

Webvan raised tons of money around 2000 and then crashed and burned.

Then in the 2010s Rappi, Glovo and Instacart, etc raised $ and now are worth $$$.

Practically the same idea. But some got the Why Now? question right. 

The other day an entrepreneur told me about his business to produce a special essential oil at a MASSIVE scale. But something didn’t add up: essential oil is nothing new. Why would now be the right time to do it? If this is so great why has no one else done it? I was confused and, as they say, a confused mind never buys. (If I took on this client I’d be trying to convince investors to “buy”). 

After lots of back and forth it finally came to light that this essential oil crop only grows well in this particular country because of climate needs. AND the government of that country had banned private companies from producing it…until a few years ago when the ban was lifted. This meant the entrepreneur had unique timing to be the first private company producing this essential oil in the best climate. The Why Now was answered. 

There are three dimensions to Why Now?

1. Economic impetus

2. Enabling technology

3. Cultural acceptance

See: Single Biggest Reason Startups Succeed TED talk

Why You?

The other week I had an onboarding call with an entrepreneur. On his LinkedIn it said:

• CEO @ startup 2021-present

• Biz Dev @ startup 2016-2021

So I assumed he had taken over the role of CEO and wasn’t the founder.

“So when did you take over from the founders?” I asked.

*pause* Something was off.

“Wait, are you one of the founders?”

“Yes.”

“Are there other founders?”

“No.”

“Wait, so why were you biz dev?”

“I had to give myself a title and didn’t want to look too egotistical being the CEO”

For the love of all that is holy, please change your LinkedIn to say Founder and CEO since 2016. Let’s not be modest. Investors need to know who they are talking to. Founder and CEO is a very different person than the CEO who took over after 5 years.

I was onboarding a founder of an FMCG (Fast Moving Consumer Goods, think spaghetti, cooking oil, soap, etc). This was the second meeting and I was trying to figure out how to pitch why they were special in a competitive industry.

“So…what is your background? What were you doing before this?”

“I was Head of Sales at [FMCG Company].”

“Oh yeah? What were your sales there?”

“120m”

“120 million shillings?”

“Dollars.”

“120 million dollars?? annually?????”

“Yes. I doubled sales over the 3 years I was there.”

Wait, what?! This entrepreneur knew how to absolutely CRUSH it at FMCG sales. And I wasn’t finding out until our 2nd meeting. This needed to be on the first page of the pitch deck and in any messaging the entrepreneur sent in cold emails to potential investors.

TLDR. Figure out what makes you special and don’t be shy about saying it.

Investors throw petrol on a fire

Investors have petrol. They want to throw it on a campfire. So that the campfire gets really really big. They don’t want to throw their petrol on some damp grass. That won’t do them any good. Your business should already have a lot of momentum. How do you show investors you already have a campfire and not damp grass?

I was talking to an entrepreneur running a messaging app the other day who was excited to talk to investors. I asked about the traction the company had. He said they had 900 customers using their messaging app since they started 2 years ago. This is not very good growth for a messaging app. Definitely not a campfire.

Compare this to the essential oil business: that was a once in a lifetime opportunity when the government deregulated this essential oil. Oh, and the company was growing 5x YoY (year-on-year) and had 10x more purchase orders than it’s factory could fulfill. That’s a campfire worth throwing some petrol on.

Address a problem your customer has; not a societal problem

I see a lot of decks say “Climate change is coming so we need to provide solar water pumps/improve logistics/plant trees/etc.” That may be the case but it doesn’t prove someone wants to buy your product. Companies need to provide value to a specific customer. The reason you started the company might be because you are passionate about some societal problem. Great. But this is not a political campaign to get elected. 

Address a *customer* problem.

Ask questions: How can you help them?

See my previous post on sales. Asking questions is the most important thing. It shouldn’t be all the entrepreneur pitching the investor. I wouldn’t even know what to pitch until I know what the investor cares about. What do they need? I’m here to help them solve their problem. Once I solve their problem then they can help me solve my problem.

Just this week an entrepreneur said “the meeting didn’t go well. They liked our biz but said our deal was too small.” Okay, I responded. Did you ask them what deal size they were looking for? Because right now you don’t know when you should reach back out. Stop the short term thinking of just trying to raise this round. Keep them in your StreakCRM and reach out to them in 24 months when you are ready to raise your next round. 

Quarterly newsletter

Every warm lead was once a cold lead.

One way to turn a cold lead into a warm lead is to have a call with them and ask if you can put them on your quarterly newsletter. You can use Medium, Substack or Mailchimp to send around a “Partners Update” every quarter. You can slow drip them info for the next 2 years and by then they will be a warm lead.

The response rate might be low but they are reading it.

This is a low effort way of keeping potential partners engaged (funders, customers, suppliers, friends&family). Plus, writing a quarterly update helps you synthesize what you are learning on the startup journey.

Pro tip: make sure the newsletter is (mostly) not bragging about your company but providing value to the reader. Does it have a cool graph you found that quarter? An article you like in the sector? Job opportunities at your company? Or something entertaining: One entrepreneur I know asks readers if they can identify the mystery plant, and recognizes the people who guess correctly in the next newsletter.

Please like, comment, subscribe and share with friend. It would mean the world to me. And since I don’t charge for this information that is my only ask.

But there is also a countervailing force: sometimes the leaders and experts ARE wrong. So the question is, when are you more likely to be right than the experts?

Is it…

• Stock picking?

• Finding alternative health solutions?

• Starting a business all the experts say will never work?

In this essay I’ll show why beating the experts on stock picking is nearly impossible, finding alternative health solutions is tricky but doable and startups that prove the experts wrong are the norm.

For more detailed analysis, read Inadequate Equilibria by Eliezer Yudkowsky, where many of these examples are taken from.

An analogy

Imagine a world where people are very sensitive to the sun—the higher elevation they are the worse off they are. So they try to live at as low elevation as possible. And these are people with no access to the outside world or GPS satellites or anything like that.

So they try to go to some place with lower elevation but every direction they go has higher elevation. They conclude this is the lowest place in the land.

But one day a brave soul, Alex, says “I’m going to find a lower place for my people”

 “No!” the people cry. “We have already looked and this is the lowest place. You are going to burn up!”

Despite this, our hero (or village idiot, as Alex is now popularly known) starts climbing the hill. Alex finds that eventually the land starts going down and finds a new place to live that is further from the sun. Wow, Alex thinks, won’t my people be so happy that a found a new place to live that is better? 

Alex braves the mountain peak to go back to bring the good news. But gets an unexpected response. “You expect us to believe that there is a lower, better place than our dear homeland?! Most certainly not!” Rather than admit they were wrong and update their opinion they’d rather blame someone else for their ignorance.

This example shows not only how hard it is for the “experts” to update their point of view but also the kinds of situations where one single hardworking non-expert is likely to find a better solution.

Real-world examples:

Internal combustion engine (ICE) cars are pretty great, right? And they have vastly improved since they were invented in ~1900.

But there was always a feeling that cars could be better. For example, ICE cars are pretty inefficient. About 17% efficient. Meanwhile, an electric motor would be about 70% efficient. Given that electric power plants are around 50% efficient electric cars are still ~35% efficient, twice as efficient as ICEs. Electric cars would have other benefits like low smog and low noise.

But there was no clear way to get there. ICE cars are cheap and the barriers seemed insurmountable. All attempts at electric cars either failed (the GM EV1) or were not true electric cars (Prius Hybrid).

As Yudkowsky says in Inadequate Equilibria, getting over one of these hurdles, is so expensive that it requires someone with a lot of money (billionaire level), strong conviction and little concern for losing their reputation (or their money) as they are likely to be proved wrong and ridiculed. Such a trifecta is rare in an individual.

Lucky for us mere mortals such a person did exist (otherwise it might have taken much longer to get electric cars).

Sidenote: This is why taxing billionaires has downsides for society. Better to encourage them to invest in such world-changing technologies like electric cars or better healthcare. We kinda do this by making non-profit donations tax-exempt but non-profits rarely create such world-altering technology as Tesla or SpaceX, which is providing uncensorable internet to the most remote villages in the world through their internet service, StarLink. Thus, efforts to Tax the Rich has the unintended side effect of depriving the world of world changing technologies. Instead of Tax the Rich we should Incentivize the Rich to invest their capital in potentially world changing ideas.

The reality is that all new businesses have some kind of activation energy that have to be overcome. Some activation energies are higher than others. For example, though creating Facebook was no trivial matter, it wasn’t as hard as starting an electric car company— it could be created by college students, evidently.

Meanwhile, other areas are much harder. Let’s take healthcare. Somehow the US has the world’s most expensive healthcare per capita and without the best results. And anyone who has been to a hospital has the distinct impression that there is room for improvement. You don’t need to be an expert to have the gut feeling that something is wrong here.

But no one seems to be able to fix it. Sure, there are lots of theories but for whatever reason no billionaire has fixed it. Even the effort by Amazon, Berkshire Hathaway and Chase Bank to make something better with a world-famous surgeon at the helm failed.

So healthcare looks something like this:

Some general principles:

Any time the world has reached an equilibrium that is not optimal we can say it is inefficient or inadequate.

There can be many reasons for inefficient systems. In the 2000s, Japan experienced declining Nominal GDP. A primary reason, speculated by some economists was *low* inflation rate. If only the money supply was increased, there would be more investment, people would spend more, there would be more jobs and eventually more exports too. So why didn’t the central bank of Japan change things? 

The central bankers were disincentivized from solving the problem. Here’s why: central bankers want to keep inflation low. No one wants to be the next Weimar Republic (Germany pre-WWII) or Zimbabwe or Venezuela, right? So central bankers are left with a situation where if the economy improves they are heroes, regardless of inflation. If the economy stays bad and inflation is low, no one can fault them. But if the economy stays bad even as inflation rises they will lose their jobs. It’s like this:

President Abe ran on the platform of increasing inflation and when he did increase inflation the economy seemed to do better too (though hard to tell what caused what in such a complex system).

Even though many people thought Japan’s inflation was too low, there was no way to exploit this inefficiency. In other words it was unexploitable.

On the opposite end of the exploitability spectrum is stock trading. Exploitability explains why a layman contrarian shouldn’t expect to beat the stock market. Inefficiencies in stock pricing are easily exploitable by any of the tens of thousands of people staring at computer in financial centers and at home. And they can do it on their own without needing to form a whole team or solve some other complicated problems first—they buy or sell a stock.

Do you know what the most effective treatment for depression and anxiety is? Exercise. Yes, Exercise is more effective and longer lasting than pills for treating depression. And there are many studies on it so it seems repeatable. So why do we hear drug ads on tv for depression and not exercise ads for depression? When I've gone for therapy no psychiatrist has ever suggested exercise. Maybe because it's hard for large corporations to make money prescribing exercise. … gyms obviously make money but they never advertise the anti-depression effects. It's unexploitable.

Collective action problems are different. Many people need to get together to solve these problems. I work with an entrepreneur in Kenya who has developed an emergency hotline that gives world-class service to hundreds of thousands of Kenyans and hopefully scales across the developing world. Let’s give a scale for things. In the US it takes about 10 minutes to get emergency medical help if you call 911. In Kenya, it used to take 164 minutes to get medical attention. With Flare, despite the poor infrastructure and traffic jams, they have reduced the time to get medical attention to 18 minutes on average, just 3 years after launch. How did they do it?

Emergency healthcare is a collective action problem. In the US, local governments host an emergency number with dispatchers who connect with the nearest available ambulance and the ambulance brings the patient to the nearest available hospital.

The problem in Kenya is that although there is a government emergency number, the number is not connected to any ambulances or hospitals. You can call them, they will take your details but then they will tell you to call the ambulance. There are 200 ish ambulance companies so you can’t know which is the closest one. Further, since people don’t have addresses in Kenya, you can’t tell the ambulance where to go. You’re dead by the time they arrive. So people take matters into their own hands, get a taxi (if they can afford it) and get to the hospital (which may or may not have the facilities to treat them). This is why it takes 164 minutes for patients to get medical treatment in Kenya; they only get treatment once they arrive at the hospital.

You might think, “oh, it’s a poor country, they probably can’t afford ambulances– the solution is to get more ambulances” but Kenya actually has more ambulances per capita than the UK. So what the heck is going on?

So why doesn’t the government just create a functioning emergency hotline? Like central bankers in Japan, the government is disincentivized from doing that. If they pledge in the newspaper to make 911 better they will probably look bad. Things will probably get worse before they get better. If you don’t try you can’t fail, right?

What about ambulances or hospitals solving this problem? It’s good for their business, right? An ambulance company would only want to send their own ambulances and hospitals would only want to send patients to their hospitals.

Some third-party needs to step in. 

But how do you get really poor people to pay for it? And even if they could afford to pay for it, how would you get people to walk around with $100 in their pocket so they can pay for the ambulance if they ever have an emergency. (Remember you can’t bill people in Kenya because they don’t have addresses.)

These entrepreneurs came up with a clever solution: employers want their employees to have emergency medical insurance so that if their employees are ever hurt on the job the employers are off the hook. Plus, it’s good for employee retention.

Flare created an employer-funded emergency insurance fund and a dispatch system to stitch together all the ambulance companies and hospitals.

This is an example of Collective Action failure that a non-expert, non-billionaire was able to solve. Collective Action problems are a treasure trove of startup ideas–one clever entrepreneur can unlock financial opportunities that “experts” can’t see because they aren’t incentivized to see them.

Yudkowsky shares another anecdote of coordination failure: this time on light therapy. Some systems are inefficient because they are unscalable or niche. Yudkowsky’s wife has Seasonal Affective Disorder (SAD) which means she gets depressed in the winter. The usual treatment is to sit in front of a lamp for 30 minutes a day during the winter. But this did not help her. The next solution was to move to Chile (or somewhere sunny) during the winter, but this would be expensive and disrupt their life. 

Yudkowsky thought “If the issue is sunlight, and one lamp for 30 minutes isn’t enough, let’s just add more light. Has anyone tried that?” He thoroughly researched the subject online and bought hardcopy books that might contain info that might not be accessible online but no one ever mentioned it working nor even that they tried it and it didn’t work. About 4% of people have SAD and half of those have SAD that doen’t respond to normal treatment (1 light bulb, 30 minutes a day). What are the chances that a non-expert, non-doctor who has done thorough research can come up with a medical treatment that actually works?

It’s worth thinking about. People come up with “medical solutions” that don’t work every day. My family loves to use homeopathy. But in 168 out of 168 double-blind studies homeopathy has been shown to be ineffective compared to placebo. So what makes Yudkowsky’s solution more likely to work than homeopathy? It’s a solution that should be obvious to everyone: if a little sun is good, more sun might be better and thus quite obvious.

Answer: 1st principles and coordination failure.

1st Principles: Yudkowsky has looked as deeply at the problem as possible. SAD only happens in the winter and we already know some light helps some people.

Secondly, coordination failure. For lots of light to be prescribed, lots of coordination is required from the stakeholders:

• Psychiatrists can only prescribe treatments that are tested.

• Researchers don’t want to test this because it doesn’t fit people’s conception of what treatment is.

• Entrepreneurs don’t want invest in this because it’s not protectable (any other entrepreneur can create their own collection of light bulbs). Moreover, it doesn’t affect that many people so the market size is small and there won’t be many repeat customers: people need to buy more pills every month, but people can buy LED light bulbs once and they are set for 20 years.

Yudkowsky tried lighting up his house like a Christmas tree and it seems to have worked for his wife! She no longer has SAD.

Medical fields are a treasure trove for beating the experts actually. But also a landscape full of traps. My friend had the strange issue that he lost his voice and no doctor could find the cause. He’s the type to research problems and not give up. He tried different diets and found that avoiding a group of vegetables called nightshades (potatoes, eggplant, peppers and tomatoes) seemed to make his voice come back a little, whereas other diets like gluten-free or lactose-free did not. Further research revealed that these plants have a little bit of what makes Deadly Nightshade deadly, namely solanine. And in some studies, it looked like some people had an allergy to it. His voice came back and now he can talk again! This was amazing.

So why was my friend able to beat the experts? Patients have first-hand knowledge of their bodies and the inputs to their bodies. More importantly, they have the alignment of incentives to figure out what is going on. It’s their bodies, after all.

But this led right into a trap for my friend. If doctors could be wrong about nightshades, what else were they wrong about? He became convinced that minute amounts of lead in fish were causing him depression. It got to the point that was all he ever talked about and it was hard to be around him. Maybe lead is a problem. But maybe it’s not. That his first discovery that debunks the experts is so similar to the second seems unlikely, considering he has no expertise in human health prior to this.

The extreme case of misaligned incentives is conflict of interests. A lawyer advocating more legal work or a surgeon advocating surgery or a business lobbying for more subsidy is something to be suspicious of. They might be right but they are more likely to be biased.

But, as they say, “no conflict; no interest.” That is, only those with something to gain from the situation take an interest in it. Why would some random person off the street care if you get knee surgery or not? Thus, the opinions of most experts are compromised. This further proves that a non-expert should be more right than an expert in some cases.

Relative expected frequency for different kinds of coordination failures helps predict when a thoughtful, motivated non-expert might discover or create something that experts couldn’t or thought was impossible.

Truly New Discovery. The most rare is to discover something new all on your own. The discovery of light bulbs for instance. Or that x medicine cures y disease. Someone could do this 0 to 2 times in their lifetime

Synthesis for personal use. Yudkowsky does this with lightbulbs to cure SAD for his wife. It’s not clear if this works for anyone else. Plus, it’s merely an extension of existing knowledge. A committed non-expert might do this 1x per year.

Pick the correct side of an existing argument between experts. I don’t have any original research. I’m not synthesizing existing research. I’m just reporting what experts say. Then I explain why I side with one instead of the other. We do this when we get a second opinion when we go to the doctor–we are choosing which of two experts to believe.

Drawing these item on a spectrum highlights that intermediate points are also possible.

Omelette Error

This is a common mistake for young rationalists to make (young entrepreneurs, scientists, etc), Yudkowsky says. It goes like this: many people are trying to make good omelets. But all the omelets are terrible. You know you can make better omelets. So you get to work and after quite a bit of financial and time investment you are making great omelets. But no one buys them. Why? It turns out that the market says it wants great omelets but that’s not actually what it pays for. It pays for undercooked egg-slop that looks good for Instagram photos at trendy brunch venues.

The omelet error happens all the time in my world of grant writing for social impact businesses (and Yudkowsky says it happens all the time in science grants, too). Grantors say they want to fund innovative projects that have the most impact per dollar. So lots of young entrepreneurs try to build first-of-a-kind businesses that are far more impactful than what is out there. But getting the funding is hard. Why?

What grantors really want is prestige, good optics and low risk. Prestige is getting their name or their boss’s name somewhere near “Nobel Peace Prize” or “Harvard” or at least as few layers removed as possible. Good optics means something that makes for a good picture with a good story; building the first tomato canning factory in Kenya might be the most impactful, dollar for dollar, but training farmers in a field surrounded by ripe tomatoes makes for a much better photo op, doesn’t it?

versus

And low risk means the project has been running for at least three years and has a stable budget. Sorry, but if a company has been running for at least 3 years with a stable budget is unlikely to be innovative.

In science grants, people say they want to fund innovation, but when decisions are made by committee and when people’s main objective is to not be fired, they fund whatever was funded before, so we get stuck in a local maxima—an inadequate equilibria.

But how would a young rationalist know they are in such a situation?

Here’s some guidance on when you *might* have a chance of beating the experts:

Examples of contrarian “technologies” that are unlikely to work from XKCD comic:

[Not to be confused with “Companies making a killing selling it to OTHER people who think it works.”] Source: https://xkcd.com/808/

What times have you gone against expert consensus?

Let me share what I have learned about sales, focusing on two main principles that I think are overlooked:

1. Asking questions and

2. Managing your psychology.

If you aren’t familiar with those two sales skills you might gain the most from this.

My Sales Journey

I left Kenya in 2015 to go to Silicon Valley to learn sales because I felt my previous businesses would have been better off if I knew sales (I’m an engineer). I got an entry-level sales job, which was actually rather hard because everyone I interviewed with said, “you're an entrepreneur. You're going to leave us in a few months. Why would I hire you?” Until a friend hired me for a sales role. Now I'm less bad at a few kinds of sales, specifically cold email outreach to SMEs and proposal driven sales. I don't know much about B2C sales, D2C, complex enterprise sales with many stakeholders, etc.

I've raised $10m, sold $300k in business consultancy services, sold $500k of equipment to rural farmers in Kenya, sold $50k of Airbnb rentals and sold about $3m LTV in SaaS so if you've done more than that or in a different industry take everything I say with a grain of salt. Nevertheless, this essay might be valuable to you because I don’t see many people talking about sales honestly. I’ll only share techniques I've used myself. If you want to know about the other 15 kinds of sales read the book Traction (or a summary of it here).

Two Golden Principles 

Sales is everywhere: raising money is sales, hiring is sales, dating is sales, life is sales. But weirdly few teach sales. Maybe because we are at the very early stages of understanding human relationships (sales is human relationships). Maybe sales is where astronomy was in the 1500s. We think the earth actually goes around the sun, but we are still hammering out the principles. However, there are some principles of sales that are known. I don't know why they aren't taught in school–seems more useful than trigonometry. Of course, I can’t fully teach B2B sales in an essay any more than one could teach football or fashion design: which part, which role? It's made up of tons of skills practiced repeatedly. But we can get started.

 1) The most important principle I learned in sales was to ask questions. It does three things:

• People get to talk about their favorite subject, themselves and their problems.

• I get to find out what their problems are so I know what aspect of my solution to pitch .

• I control the conversation because most people respond to questions they are asked so I can ask things like, 'What do you not like about your current solution?' and they will tell me. Or leading questions like "Is it important for your business to be in retail stores for the Christmas season?" if I'm selling retail space.

 After I discovered the importance of questions in sales for myself I found several sales "gurus" say the same thing: spend 90% of the time asking questions and 10% of the time pitching.

2) The second most important principle is to manage my own psychology. I've had great days where I sell 2 or 3 things and then whole months where I sell nothing. Even more infuriatingly, my effort feels uncorrelated with sales at the micro level. I went a whole year without winning any grants and then won one on a Monday and one on Tuesday. What do you make of that!? Years ago when I started grant writing I went 0-21. Then the 22nd was for $1.2m. So not allowing yourself to sink when you’re low is key. I find 3 workouts a week, occasional breathwork or meditation, dinner parties, latin dance class, entrepreneur mastermind groups and inspirational podcasts like The Game and Founders help me manage my psychology. Probably everyone has their own formula for managing their own psychology.

Other Sales Principles That Helped Me 

• Separate Lead gen from Closing. Often lead gen is repetitive and requires different skills than closing. I don’t expect my electrician to fix my plumbing.

• For cold email outreach, add value in the first email. My grant writing company adds links to 1-3 grants we think would be a fit for an entrepreneur. We get many responses saying, “I think this is the first time I'm responding to a cold email.” The way I did cold outreach when I was selling retail space was to say "hey, do you want to get your product in retail?" which is the dream of every product company so that got them to open the email and respond. 

  • Pro tip: raise urgency. Sending someone a funding opportunity with a deadline creates urgency. Delay kills all sales because people generally prefer to delay decisions. But having an application deadline means we have to close something by a certain date. This creates FOMO and drives the sale to a close. If I can find a natural source of urgency or scarcity that is better than creating false urgency. 

• The best cold emails are really short. I cold emailed Jeff Bezos (his email can be found online) saying "Hi Jeff, We have a store (link to the store so he could see that it looked beautiful) for innovative products and I wanted to sell the Amazon Echo. Who's the best person to talk to about this at Amazon? Yours, Kyle." A few days later I got a call from Amazon and a few months later we had the Amazon Echo in our store. Here’s the formula I use for cold emails: Hey (“Hi” or “Dear” depending on the ethos of my brand) [name]. Love what you are doing at [company]. [Possibly add something interesting I saw about them online.] [Add value to them by offering something of value] [Lead into how we can help; a teaser is fine. Don’t explain how the sausage gets made]. Is there a good time for a call this week or next? (making the call to action clear). [email signature with useful info like a blog link that might pique their interest. I don’t put my phone number or calendly in the email signature because I might want to qualify the lead before setting up a 30 minute call]

• Cold emails are a volume game. I have a wide top-of-funnel and a strong filter. Being clear about what we do and what we don't do is key to filter people out. For example, we work with entrepreneurs doing $250k-$20m in revenue. When my cold outreach (SDR, Sales Development Rep) colleague brings a company doing $100k in revenue he knows to say “Sounds like you have an awesome business. Let’s be in touch soon.”

• Find Lead Mines. Adding leads to the funnel as I find them in random places isn’t enough, so I think it’s important to find “lead mines,” places with a high concentration of good leads. For example, when I was selling to startup consumer electronics companies, I would go to Kickstarter and look for projects that had raised $100k+ 18 months ago or more. This means they had a successful project and 18 months later is when they start thinking about getting into retail. For our grant writing business I look for: 1) lists of conference attendees, 2) the portfolio companies of any investor I want to raise money from and 3) companies that were in startup accelerators in our space. When I find a lead mine, I hire someone on Fiverr, send the freelancer a list of pages to mine from and ask the freelancer to get the CEO's email, CEO's name, location, and sector for all of the companies as this is rather repetitive work. Finding a lead mine is tricky. Often it takes months to figure out a good lead mine. 

• Find the correct email addresses to contact. Finding an email address is rather easy with tools like hunter.io. Alternatively, I can guess the right email and gmail reveals if the email is correct. I can type adam.smith@capitalism.com, asmith@capitalism.com or smitha@capitalism.com and if any of those are correct gmail will display a picture of them. Bingo. 

  • Only the correct email pops up with my profile picture:

    

• Avoid becoming spam. Because cold outreach is a numbers game, I have the risk of receivers marking my address as spam. This would cause all future emails to that address to be sent to the spam folder, never to be seen. Even worse, google could mark my whole domain as spam and even new leads get my emails sent to their spam. To avoid this there are four precautions: 

  • 1. Put an unsubscribe link in your email so that receivers can opt-out rather than mark spam. 

  • 2. Use warmupinbox.com to increase the deliverability of the domain. 

  • 3. Aim for high response rates of around 10-50%. Check your spam folder in Gmail. You’ll see lots of fishy emails in there. These guys are getting a <0.1 response rate. Google has banished their domains to the spam underworld. 

  • 4. Use a different domain for cold emails like the thegrant.app instead of thegrant.co, for example, so that organization-wide deliverability is not affected in case I mess up on 1, 2 and 3 above. Deliverability can be a big problem.

• Start with a wide funnel for fundraising. We review about 100 opportunities a week and of those apply for 2-3 a month. We only apply for money between $100k and $10m focused on for-profit companies in Africa in Ag, energy or tech. These guidelines help our SDR know what's inbounds.

  • Note that the above is a system designed for operational efficiency, not finding product-market fit. In the beginning, I interviewed 10 startup friends about their experience raising capital and realized 2 of them were a good fit and went in that direction, with many modifications over time. How to make my first sale was different from my 10th or 100th sale.

• There’s a big difference between operational sales and pre-product-market fit sales. The latter, I need to provide a higher base salary for. Commission makes people optimize for one metric. But what if I don’t know what to optimize for yet? Better to have someone who is curious in helping customers get their problem solved, and relay that info to the product team so they can build a product people want.

  • On this point often it is best for the CEO to do sales until there is some product market fit. Also of note, sales is THE key skill of a CEO, not building product, counter-intuitively. If a CEO can sell and build a great product then dynamite, but sales is the must-have. 

• Follow-up is key. People are busy and forget about my email. Maybe deep down they want to see if I'm serious. Simple follow-ups like “Subject: Right contact? Body: are you the one in charge of fundraising at abc company? If not, could you forward this to the right person?” It’s shocking how often they forward the email. Most people want to be helpful. But if I don’t tell them what I need they won’t know what to do. When I make a specific ask then they know all I want from them is to forward this. There’s software to automate this.

• Create an obvious ask at the end of each email with only ONE action they should take. Not 3 different options. Just one. Usually a link to my calendly, but maybe qualifying questions like what was your revenue last year? Or “could you forward this to so and so?”

• Calendly is a great, free tool to schedule meetings. The prospect can pick a time on my calendar without any back and forth. But an important principle here is power dynamic. If I say “I want to sell you on this, now you pick a time on my calendar” it feels like I’m asking them for two favors at once. But if I say “When’s a good time for you to meet up? Or if it’s easier for you, you can pick a time on my calendly at [link]”. Now I’m doing them a favor by making scheduling easier for them.

• Qualifying leads is key. How to funnel down leads from the many to the few. The lead gen person plays a numbers game. The closer plays a quality game. Maybe only 1-5% of leads turn into a call, but 25% of calls close. BANT (Budget Authority Needs Timeline) is a good framework to manage the transition from lead gen to closer (Sales Development Rep to Account Executive). The AE should only get on the call with people who have Budget for the project, Authority to sign a deal, Need for the product and a Timeline to make this happen. If they don’t have all four they are not a sales qualified lead and I don’t get on the phone with them. (Note it’s different when I’m trying to establish product market fit and just gather data.)

• Don’t be too hard on SDRs. They are on the front lines getting a lot of rejection. Ideally, 50 to 90% of leads they send the AE should be qualified leads (that is, pass the BANT test). If 100% of leads pass BANT that means the SDR is being too selective and screening out potentially qualified leads and we are missing out on opportunities. To make sure my leniency can’t be gamed, I only recognize the SDR for qualified leads but there is no disincentive for sending unqualified leads as long as >50% are qualified.

• Advice from “experienced” people (like me) might not be suited to your situation. When I first started as an entrepreneur 12 years ago, experienced business people would ask if I had a CRM because that's what you need to scale. I looked around and there was nothing that fit so we made a custom CRM. This was a total waste of time. We had 12 customers at the time. I could have memorized all of their phone numbers. I should have been out there selling. That said, once you have too many leads to keep track of…

• …have a fit for purpose, CRM. Now I use StreakCRM (free for the first user and sits directly in Gmail inbox) which covers most of our needs and Google Sheets is adaptable to most situations.

• Do quick research before outreach and calls. I used to think that I should consume all the content someone created before talking with them for a sales call, but actually just reviewing their LinkedIn and googling their name provides enough info without being stalkerish.

• On a call, start with 1-2 minutes of report building. Where are you today? How was your weekend? If report building is important to them they will drop hints about things you should ask about. I was in Virginia visiting my daughter. Now I know I can ask "Oh yeah? What's she working on there?" “She works at a gun shop in the mountains. Beautiful there…” "Yeah, actually I've been a couple of times to VA. My brother lives in Norfolk. have you been?" Now I have material to understand their view of the world and make our pitch relatable. If report building is not important to them I move on.

• Learn to be okay with interrupting (at appropriate times). After report building, I turn the conversation towards their problem. This requires me to interrupt their story. Otherwise, they will ask me what our service is and I don't want to pitch that until after I know what their problem is. (See “asking questions” above.) I start by saying "I understand that xyz about your company" based on my previous online research and what our SDR has put in the call notes. Then they know I've done my research and they can also correct me. The fastest way to get the right answer is to present the wrong answer and people can’t help but correct me.

• I Record sales calls when possible. Every time I do, I find it valuable. If someone asks why I just say to make sure I get all the important info from you. If they ever asked for me to turn it off I would but no one has.

• Repeat back their key points

  • “So what you are saying is you have a grant writer but you are having a hard time getting enough deal flow of grants to write. Is that right?” Sometimes people don’t understand their problem until someone says it back to them

  • I repeat back in a summary, not verbatim like a parrot.

  • What all humans want is to be understood. More than anything else. That is why they started a business; to be seen and understood for the entrepreneurial person they are. By repeating back to them I am showing that I understand them.

  • Life hack: this is a great way to defuse situations in romantic relationships too: “So what you’re saying is… Did I get that right?”

  • It is ESPECIALLY important to use this technique in sales even if I don’t agree with them. And that is the hardest time to remember to do it. “So you’re saying that all grant writers are pretty much useless and it’s been nothing but frustration for you. Is that right?”

  • I try not to overuse it. Once or twice per conversation is enough.

• Don’t explain how the sausage gets made. I used to make this mistake all of the time. When we had a biogas company, I would share the technical drawings with potential clients and try to explain how the pressure of the gas was 12psi, yadda yadda. The prospect doesn’t need to know how it happens, they need to believe that I can deliver. Competence is inferred from my previous work, my confidence, how I am dressed (if I’m hiring a plumber I want someone dressed like a plumber, not a banking executive) and how well they believe I understand their problem (which comes from asking questions 😀).

• Objection handling. This is a key concept in sales. The prospect usually has objections and they come in three flavors:

  • I don’t have the money

  • I don’t have the authority

  • I need to think about it.

  • They say “Isn’t that expensive?”

    • Yes. It is expensive (own it). I hope we are the MOST expensive. Because we are also the best. Would you expect the best to be the cheapest? If anyone is more expensive than us let me know. If I did everything I said we can do for you would you think it’s worthwhile? If you didn’t have money problems and you could focus on your business? If I said it was cheap to solve your financing problems would you even believe me? (If you are actually a budget option this is not a good way to handle this objection 😆) Podcast on this topic

    • It's not about how much it costs. It's about how much I can make you.

    • If I offered to sell you a new Range Rover for $2000, would you find the money to get it? I’m saying for $2,000 I can give you a Range Rover worth of value in a grant. 

    • Of course, handling the money objection like this only works if couched in the right way. When the prospect says it’s too expensive or they don’t have the money I say “can I offer a way for you to think about this that might be helpful?” To which they always say yes. This is better than trying to force my analogy down their throat. Now I have their permission and it would be rude for them to interrupt me. Notice also that this is a question. “Can I offer you something useful?” not “Here’s how you need to think about this…”

  • I don’t have the authority to make the decision

    • “How do you make decisions about something like this at your company? Are you the one in charge or do you rely on someone else to decide?” Now I can find out if they are making an excuse or if there really is someone else I should be speaking to. If there should be someone else to speak to I say: “For us to do the best work it’s important to work with the decision maker. When would be a good time?”

  • I need to think about it:

    • Awesome, what are your main concerns?  (They think they get to walk away with that but you ask them right away.)

  • When someone has an objection, I get curious. “Interesting… Tell me more.” or “If I understand correctly, you want to solve your cash flow problems, is that right? Well, you have spent $3m on this so far, would you spend $2,000 if you thought it would solve your cash flow problems?” Now we start to peel back the onion on what is really causing them to pause.

• Backchanneling when dealing with multiple stakeholders

  • One time we brought a deal to our client. They were excited and brought it to their partner who rejected the idea. My initial reaction was to talk to the client to understand the partner’s objection but using them as a go-between was a mess. So I back channeled and called the partner out of the blue. This saved a lot of time and we were able to resolve things amicably. 

• Sometimes people don’t show up to sales meetings. I could hound them to try to get another call, but by not showing up they have disrespected our time and organization. This creates an undesirable power dynamic. If they are 5 mins late I send a message saying “Hey, I’m on Google Meet. If you are having any technical trouble call me at [number].” That way I have given them the benefit of the doubt that maybe they just had a family emergency, I made the effort to  make it happen but the ball is in their court and I’m not going to chase them; There are lots of fish in the sea. 

• Many people get weird about selling: I am helping the potential client solve a problem. They are on this sales call because they want me to help them solve a problem. If at the end of this call I haven't either sold them or told them where else to go to find their solution I have wasted their time. If I can help them solve their problem, then I have some moral responsibility to sell them.

• The contract is part of the sale. I try to make contracts short (2 pages) and readable so that the prospect doesn’t get a lawyer involved. At a previous company, we had Terms of Service instead of a contract so that we could say these terms are standard and not negotiable. Lawyers cause deals to stagnate; I get them involved only as much as absolutely necessary. 

• Try to schedule a follow-up call in the initial call even if they say they will sign. I schedule the follow up call at the same time the next week for easy scheduling purposes.

After the sale, the next step is implementation. A signed contract without implementation isn’t worth the paper it’s printed on. Once the sale is closed the relationship has just begun. But that's a post for another day… sign up here to find out.

More sales resources:

• Books

  • Psycho cybernetics (for managing your psychology)

  • Never split the difference (negotiation)

  • Pre-suasion (behavioral)

  • Influence 

  • $100m Offers (closing)

  • Cold email manifesto (lead gen)

  • Traction (on the 17 different ways to reach a customer)

  • Yes! 50 Scientifically proven ways to be Persuasive (behavior)

• Podcasts

  • Pricing

  • Belief is the most important sales skill

  • Conviction closes sales.

  • 4 strategies to make you not want to quit

• Why were these grantors making it so difficult for me to do my job?

• Why did they delay payment?

• Why did they ask me so many questions?

It was all getting in the way of me serving my customers: installing biogas equipment.

What I didn't realize at the time was that we had two products we were selling:

1. biogas equipment to farmers and

2. impact to grantors.

Seeing grantors as a customer and raising grant money as a sales process fundamentally changes the way you go about raising money. All of the normal sales processes apply:

• build trust

• establish scarcity

• provide value for money

• personal relationships

• marketing. It's just a fact that someone who has seen your brand before is more likely to buy from you than someone who hasn't. It's not that grantors are biased. It's just that they are human. We trust things that we know. That's just the way it is.

Let's talk more about what the product is you’re selling to a grantor: what is the value they are getting.

If funders really are the customer there must be some product you sell to them, right? What could it be? You don't transfer anything physical to them. You don't even provide them some consulting service. You can't give them a bottle of whiskey — that might be misunderstood as a bribe. So what is this thing grantors are buying from you?

The answer is Impact. You raise 1,000 people out of poverty for $1m, let’s say. That’s a Unit Cost, from the funder’s perspective of $1,000 per person raised out of poverty. We, as a biogas company, were not competing against other biogas companies for funding; we were competing against ALL other organizations that can raise people out of poverty.

From the funder’s perspective, was $1,000 per person cost effective? Could they get more people out of poverty for less money with someone else?

There's always a bigger fish

While you're looking to raise funding from a grantor, they're looking to raise funding from... someone else.

Bill and Melinda Gates fund the Gates Foundation, and the US taxpayer funds USAID. Whatever the case, there’s always a bigger fish.

The grantor you raised money from needs to explain to their funder that they spent the money well. They need to show it generated the impact they had promised. They probably raise the money in a 5 to 10-year fund to accomplish some social good. Did they accomplish it?

The easier you make it for a grantor to prove to their funder that they accomplished their goal the more likely you are to win the grant.

That's why when I'm applying for a grant I always look for the contract the grantor signed with their funder when they started the fund. (Surprisingly, this information is often available if you really look for it🤯) What promises did the funder make to their funders? If the funder promised to impact 1m farmers with a $100 million fund that means they're willing to spend $100 per farmer to achieve that objective. If we come in with $1,000 per farmer, even though the impact per farmer might be higher, we are priced out of the market.

Book of the week

I just read How Innovation Works. Perhaps you'd like the book, too. Here’s one (of many, many) nuggets of wisdom I learned from it: Big companies are bad at innovation, not necessarily bad at invention. Kodak invented the digital camera. Xerox invented the computer mouse. But neither commercialized their inventions because the digital camera and mouse would cut into their film and photocopying profits, respectively.