Investor Math in Jamaica: “I’ll give you USD $10k for 30% of your startup.” I swear, I dunno if it’s ignorance or arrogance. 😂
Entrepreneurs are so frustrated by the state of the local investor market in Jamaica. They are disgusted as to why are we seeing $10K USD investment offers for 30% of your startup or 60% of your startup for US$3,300 type of offers. Entrepreneurs are insulted by these offers and are loudly saying “hell-to-the-no-no-no.
I mean, we’re 10 years in from the start of the first two Angel investor Groups and the groundwork to corral and educate new tech investors by the organisations like Development Bank of Jamaica. So why are we still here?
This current state of things has us asking the following questions.
For the companies that got these lowball offers and accepted them, what did it yield? Were the deals and companies successful? Because the only way we’re going to get these predatory terms to stop is if they see it’s more fruitful to be reasonable and offer competitive terms. So what’s the success rate? Because operating a business is a whole other beast once the founder loses incentive. Are investors making money this way or is there data to show they are shooting themselves in the foot?
Additionally
• Are equity investments the wrong instrument? Is doing priced rounds for early-stage startups helpful or harmful, or should investors and entrepreneurs should utilise convertible notes to manage both upside and downside risks? Does the local investor market understand how this works?
• Are these deals being offered as is, because there is a perception that a stronger pipeline of startups needs to materialise so that real abundant patient capital will show up?
• Are some investors offering these deals to kill or acqui-hire startup entrepreneurs who’ve created products that scare them or can disrupt their current place in an industry?
• How long with this risk-averse culture prevail for early-stage startups as more mature digital businesses seem to now have a problem with attracting Capital? But if we only keep watering one section of an industry, where will future innovation and industry leaders come from? Seems kind of a backward strategy.
• Can Jamaican investors see investing in early-stage businesses the way seasoned and successful American and European investors see this type of investing – as plain math and long-term strategy? Which is to have a portfolio of at least 20 startups knowing that 80-90% will fail, but the ones that succeed will return their money exponentially.
• Is our financial system still too oligopolistic, so not enough competition among funding sources and rates?
• Can the passing of the Partnership Act of 2017 Help Disrupt the Local Investor Scene? The Jamaican Tech and Financial Industry has been waiting with bated breath for the Ministerial sign-off and the regulatory framework to bring into full effect The newly enacted Partnership (Limited) Act, 2017. Whenever this is done, it will usher in some of the “key necessities and intricacies of the modern commercial landscape which includes several novel forms of limited partnerships as well as a more defined set of rules which govern their formation and operation. Many of these rules facilitate the effective utilization of the limited partnership as an investment vehicle.”
In short, Angel and Venture Funds could be registered and formed in Jamaica easily without the legal gymnastics, allowing for a freer, legal, and more abundant flow of Investment Capital for Tech Startups and Digital SMEs. Additionally, Tech Startups especially would not have to register in the United States to get US investor angel and venture funds to launch and grow their digital businesses.
More this Moving Forward
1 Entrepreneurs need to get better educated on how and when to Fundraise for their startups, what makes a great investor, and how to negotiate, if they choose not to go the bootstrapped route.
2 New to the game, high net-worth individuals and Angel investors need to get better educated on how to evaluate a tech startup, and the entrepreneur and make offers either as a solo investor or as part of an Angel Community Fund.
3 The government can set up and Enact the Partnership Act Regulations that make for easy setup, registration, and legal operation of Funds that will create a flow of Investor cash throughout the Caribbean, from the Caribbean Diaspora into the Region as well as a flow from seasoned and successful Investors in the States and Europe.
Further Reading
Funded & Flown Out – 4 Jamaican Entrepreneurs Become TechStars
Why Did TechStars Invest in those 3 Jamaican Tech Startups Last Week? They Tell Us.