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its ownership after receiving outside funding. You will read articles on private investment and consider the value of
these funding streams in your own business. Next, you will consider the most important elements of your business to
develop an elevator pitch.
Glossary of Terms
Equity Dilution
Equity dilution is the process of distributing shares of a company. The founders of a company hold 100% of the
shares, but they may dilute their share over time in return for private investment, attracting new employees, or as
part of a deal with other company.
Valuation
A valuation is the amount of money that a company is legally worth based on an investment. For private companies,
this is determined during the negotiation process before the investment takes places.
Pre-money valuation
Pre-money valuation refers to the amount of money that a company is considered to be worth before it receives a
private investment.
Post-money valuation
Post-money valuation refers to the amount of money that a company is considered to be worth after it receives a
private investment.
Company Valuation Worksheet
If you decide to pursue private investment, you will eventually have to determine the value of your company. This is
important because your company’s current value will determine the percentage of the company that you have to give
an investor for the money they gave you. That means the more your company is worth, the less you have to give up
for the same amount of investment.
Later in this module, we will explain more about the process of investing and how to work through it. For now, you
just need to understand that it’s important to be able to independently and accurately calculate the value of your
company. Do not rely on an investor even if he or she has done dozens of investments and this is your first
company. This should be a conversation between the two of you.
After running the company for several more months you figure out that you need an investor to get enough money to
finish building and marketing your first product. You return to your advisors and lawyer to discuss how much
progress your company has made, and how that affects its value. You negotiate with several investors and find one
who is willing to offer you $100,000 at a post-money valuation of $600,000. The pie chart on the right represents the
breakdown of the company shares after taking the private investment.
This chart shows the total value of the company broken down by each shareholder. The founder and employees own
smaller percentages of the company after taking investment, but those shares are worth more money. That is the
logic of taking private investment.
Investment Survey
This week exposed to you some important information about the funding of your company from private investment.
Successful entrepreneurs in the Tony Elumelu Entrepreneurship Programme will have the opportunity to receive two
stages of funding. Stage one is 5,000 U.S.Dollars (paid in local currency), is non-returnable seed capital funding
paid to all TEEP startups upon completion of the 12-week training programme, attendance at the two-day boot camp
and participation in the Elumelu Entrepreneurship Forum. The second stage funding is 5,000 U.S Dollars (paid in
local currency) structured as equity or an affordable loan. This is optional and based on proven milestones. You may
think you need more seed capital. Completing this survey will help us determine the type and size of investment that
you will need to build your business.
Question #1
Do you plan to receive additional private investment?
1. Yes
2. Maybe in the future
3. No
Question #2
What is the single biggest reason for raising additional money?
1. To build my solution by hiring more technical people
2. To sell my solution by hiring more salespeople
3. To hire people to help me
4. I need to grow quickly to avoid competition
5. Because I will need more money in the future
6. To increase my company’s visibility
Question #3
Have you raised funding before?
1. Yes
2. No
Question #4
What type of investment will you pursue?
1. African angel investor
2. International angel investor
3. Venture capital
4. Friends and family
5. Not sure yet
Question #5
How much money will you try to raise?
1. Up to $10,000
2. $10,000 to $25,000
3. $25,000 to $75,000
4. $75,000 or more
Question #6
How much do you think your company will be worth?
1. Up to $100,000
2. $100,000 to $250,000
3. $250,000 to $500,000
4. $500,000 or more
Question #7
What will you do with $5,000 from the Tony Elumelu Entrepreneurship Programme?
1. Develop the first version of my product or service
2. Improve my product or service
3. Hire technical employees
4. Hire sales/marketing employees
5. Hire someone else
6. Something else
7. I don’t know yet
Investment Worksheet
Now that you have a better understanding of private investment, let’s review some of the basic ideas and see how
they apply to your business, if at all. Remember that you may never need to take private investment.
After this worksheet is complete you will spend a lot of time this week with friends, other TEEP entrepreneurs, and
your Mentor to identify and assess your company’s needs and the options available to you. Later in the module, you
will learn more about the process of investing and how it will affect your ownership and control of the business.
As with every other aspect of this programme, the most important thing to do is stay focused on how your business
will solve a customer’s problem. Any money that you receive as an investment should tie into the solution you are
building. The following questions should help you think productively about private investment, and whether you
need it.
Why do you need money? Be as specific as possible.
What are the most important three things you would do once you received funding?
How else could you do these things without directly paying for them?
How long would you be able to last on the money you are trying to raise?
What important milestones will your business reach as a result of funding?
How much money are you spending each month now? How will that number change after you receive funding?
Why is this investor a good fit? What else besides money will they bring to your business? What might make them a
better fit?
Private Investment Article
You have probably read about venture capital and how startups in Silicon Valley and similar places use private
investment to fund some of the world’s most important new companies. Businesses such as Apple, Google, and
Facebook all received venture funding. Hundreds more get funded each year.
What exactly is venture capital, though? How is it different from other types of investing? And how does that affect
you and your business? These are important questions, especially because you have the opportunity to receive some
seed capital funding from the Tony Elumelu Entrepreneurship Programme as follows: Stage one is 5,000 U.S.
Dollars (paid in local currency), is non-returnable seed capital funding paid to all TEEP startups upon completion of
the 12-week training programme, attendance at the two-day boot camp and participation in the Elumelu
Entrepreneurship Forum. The second stage funding is 5,000 U.S Dollars (paid in local currency) structured as equity
or an affordable loan. This is optional and based on proven milestones. You may also pitch other investors to help
get the resources you need to build your company.
First, let’s review the basics of your business. You are building a product or service that serves some specific
customer segment. You can solve their problem better than anyone else. Eventually, you will have many of these
customers paying you, and that is how your company will make money (which will be called revenue). Paying
customers are one of three main ways for your business to receive money.
A second option is doing it yourself. You can put your own money and other resources into the company. This
approach works well since you more carefully spend your own money, but very few of us have enough resources to
completely fund a new business. If you have family members who are wealthy enough to lend you money, this is
also a great option. Some of Africa’s most successful entrepreneurs started out with family loans: Aliko Dangote;
Sibongile Sambo; and Ken Njoroge are just a few examples.
The final option for money to build your business is private investors. Some of these could be individuals, usually
called angel investors, or investment companies, usually called venture capital firms. These groups offer you money
in return for shares of your company, which may provide great financial rewards in the future.
Both angel investors and venture capitalists work with you to build the company rapidly, increasing the value of
their share until the whole business is either purchased by another company (an acquisition) or listed on a stock
market (an initial public offering). Either way, the investors are now able to take back their money plus a percentage
of the increased value. That is why they invested in your company: to make money.
These three main sources of funds will help your company get the money it needs. Remember that you will also be
spending money quickly at the same time. The more you grow, the faster these expenses will increase. Be prepared
to spend money on a variety of activities, and think carefully about the things that are critical to building the most
important parts of your solution.
There are other options, of course. You can pursue loans, grant opportunities, aid packages, and more. These are
often more trouble than they are worth because they take your attention away from building the company and
toward satisfying difficult and time-consuming reporting requirements. At this point, the best possible thing to do is
build something customers want, not something that sounds good on paper.
Let’s go back to the private investors. This is the most confusing part of entrepreneurship because many people do
not understand the motivations of investors. They want a return on their investment, which means they want to make
money by taking a risk by funding your company. As a selected entrepreneur you can count on seed capital funding
from Tony Elumelu Entrepreneurship Programme in two stages: Stage one is 5,000 U.S. Dollars (paid in local
currency), is non-returnable seed capital funding paid to all TEEP startups upon completion of the 12-week training
programme, attendance at the two-day boot camp and participation in the Elumelu Entrepreneurship Forum. The
second stage funding is 5,000 U.S Dollars (paid in local currency) structured as equity or an affordable loan. This is
optional and based on proven milestones. Other investors will want to receive shares of the company and will make
demands on you as the entrepreneur running the company.
Private investment should not be done quickly. You must think carefully about whether you need to make money at
all, and if you do, how much to get your business going. It may be tempting to take a lot of seed funding but that
could be a big mistake. Investors may want a lot of your company, maybe even more than 50%. That means you
would lose control of the decision-making.
Many of you will not take any private investment. There are many businesses that do not require large amounts of
money. You may find co-founders, business partners, or other ways to reduce startup costs. Consider every option in
front of you before making decisions that cannot be reversed. Always ask yourself whether an investment or any
other opportunity is critical to building the solution that you think your customers need. Private investment is not the
answer to your problems as an entrepreneur. It is only a tool you can use.