Paul Kimani always wanted to be an entrepreneur, right from the time in High School when he was handpicked to join Equity African Leaders Programme for an internship-based leadership training. And so a few years later when a bright business idea came to him and his friend Jack Kungu while walking the college streets, they went for it.
In between classes, they would spend their time growing Kenya Aspirants, a platform that gave fellow technology whizzes a platform for visibility. They made a bit of money, but when they graduated from college, they went their separate ways as employment beckoned.
They would reunite years later and create Workpay, a people management platform that helps businesses with time tracking, human resource management (HRM) and payroll processing. Today, Workpay has almost 400 businesses in its portfolio. To raise capital, instead of seeking out loans, they chose an unorthodox route; that for their endeavours, they have followed the unorthodox method; seed funding.
First things first, how does seed funding work?
An investor puts in capital into a business during its early stages in exchange for equity stake. The business owner receives capital to fund their idea, while the investor acquires partial ownership of the business. So, when the business succeeds and becomes profitable, the investor can sell his or her shares for a profit.
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For you to get the funding, you must have had something to show them. How did you get that capital?
When we decided to branch out of employment, we started building websites and mobile apps and it is this money that we used to start off. Then in 2018, we decided to try our luck with Pangea Accellerator. An accelerator is a programme where for a set timeframe (a few weeks to a few months), the chosen individual companies spend time working with a group of mentors to build up their business and help the entrepreneurs avoid the common problems.
We went through that and from the programme, we raised raised $50,000 (Sh5.5 million). That helped us to move faster with the startup. Last year, we were able to raise $100,000 (Sh11 million) from a Japanese Venture Capitalist firm called Kepple Africa Ventures that has also invested in over 50 African tech startups.
Where did you get the USD2.1 million seed funding?
In 2019, we applied for a three-month programme called Y Combinator (YC) in San Francisco’s Bay Area. YC provides seed funding for startups and pays your expenses while you’re getting started. It was our second attempt and we joined the January 2020 cohort, graduated around March after which we did our seed round. This is where interested investors start putting in the money.
We were able to raise funds from various investors, including Soma Capital, Musha Ventures, P1 Ventures, and a number of angel investors.
Have your pitches to investors ever been rejected?
Yes, so many times and it is not a problem. When we were raising our last round, we received money from about 12 people but we had talked to 77 people. With an average of three meetings per person that is a total of more than 200 meetings to be able to raise that money. The important thing is to pick yourself up, dust yourself off and go to the next meeting. Sometimes we would go to the first and second meeting and be rejected and still need to go to the third meeting optimistic.
The rates of startup success are also very low, so I put myself in the investor’s shoes and not take it too hard on myself when they say no. Instead, I take feedback from all the declines and use the information to refine it. I believe the first meetings are usually the hardest but by the 100th meeting you will have learnt what to do and what not to do.
What other challenges have you faced as young entrepreneurs?
Sounds cliché but entrepreneurship is hard. Initially, I was plagued with imposter syndrome, constantly wondering whether things were not working because of me. In my first business, there was a time I lost a huge number of employees that left for other companies and I wondered if they left because I was a terrible manager. And it feels very personal especially when you read articles saying ‘people leave the manager not the job’.
Mastering the sales aspect of our business was an uphill task, especially since Kungu and I have backgrounds in engineering.
I also have a young family and finding the balance can be tricky. I would leave very early and come back tired and still have tasks to finish. However, I promised to be present all weekend so you just hope they would understand. It is not easy because both are important, you just have to make it work.
WANT TO TAKE THIS ROUTE?
Do you think this is a great option for startups?
Think of it as an analogy of planting a tree. The seed is the early financial support that helps the business to grow. Seed funding helps a company to finance its first steps, including things like market research and product development. The seed funding helps you test out your model. Startups include a lot of experimentation for you to successfully get a working business model. This experimentation requires money.
You also need to hire people to help you build. You cannot be a one man show especially when working on a global brand. You can take other routes to funding like bootstrapping, it just depends on how fast you want to and can manage to grow.
Where can startups find such investors who are willing to invest in their ideas?
First, you need to understand the ecosystem players. You need to know where these people hang out whether online or physically. Join newsletters to see the opportunities that are available. You also need to get in touch with other founders and network because the thing with fundraising is that investors work with people they know and trust.
Being in an incubator or accelerator also gives you a bit of validation which goes a long way to get you talking with investors. An accelerator is different from an incubator because accelerators usually have a set timeframe in which individual companies spend anywhere from a few weeks to a few months working with a group of mentors to build out their business and avoid problems along the way. Incubators have no set schedule and is just a building that offers subsidised rent and other business support services for early stage startups.
Your request for a meeting has been granted. How do you convince investors to give you the money?
First, you need to have your numbers in place. Know how much money you’re making and how much you can make. What is your market size? How big do you want to grow? What do you need the money for? All these are important questions you need to ask yourself and have a satisfactory answer.
Most of what entrepreneurs need, they already know not because they need to fundraise but because they are running a business. Knowing how much money you can make two or three years down the line are basic numbers. The work is really in convincing them that they will make their money back if they invest in your business
You also need to show why you are the best people to do what you do. Investors need to see a return on their investment so they need to believe in you and your team as much as the product itself.
How do you build this dream team?
Building a company takes years and you will likely be with these people for a very long time up to 10 years. Find people you can be honest with, and who can take and give constructive criticism. Also check on your strengths and weaknesses and find the people who complement you in that respect.
What do you want people who are thinking of taking this route to know?
Fundraising is frustrating and hard and finding the talent that buys into your vision is not easy either. I provide an employee stock ownership plan (ESOP) which is an employee benefit plan that gives workers ownership interest in the company. It is not a common concept in Kenya especially because it becomes worthless if the company dies and finding employees that will be on board with it is challenging. But this way, your employee is invested in the success of the company.
How beneficial are accelerators?
Very, especially for first time founders. It quickens your progress because you get to learn a lot of things that would have probably taken years to learn. The programmes also help you to validate your concept. If you want to fundraise, most accelerators put you in front of investors and give you an opportunity to meet investors and get people talking about your company which increase your chances of success.