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Before You Pitch That Idea, Understand Valuations: How To Read An Investment Term Sheet

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A term sheet in simple terms is the agreement an organization gets from investors while seeking funding. In this booklet, the investors discuss their interest and what they are bringing to the table. The owner of the company must be keen to clearly understand what the investors are after to avoid settling for a raw deal.

As we all know not all help is purely for the advancement of the company’s vision. Thereby, it is advisable in case someone does not clearly understand the terms in a term sheet to ask for guidance from a legal officer who will explain details clearly.

As explained earlier, the term sheet has different terms used to refer to assets in an organization. Investors are mainly attracted to a company because of its assets. In a term sheet, the word valuation means the value of the company in general. It is the net worth of the company.

There two types of valuation done while seeking funding. The valuation before an investor funds an organization is called pre-money. Pre-money means the company’s value has not changed its valuation. Post-money is the value of the business after funding. That means that the value of a business increases when investors invest in it. Below is a description.

If the pre-money value of a business is Ksh. 20 million and the post-money value is Ksh.25 million, this shows that the investors have invested Ksh. 5 million into the company. In percentage, the investors own 20 percent of the shares the company has.

The key element in this part is understanding that the higher the pre-money value of a company as compared to the post-money value; the higher the percentage stock ownership of the company the founders get to keep.

If the investors get the higher share they get power to make high-impact decisions to the company which can either build or destroy the company. Hence while reading the valuations of the company an individual should manage to understand the value of the company he is in charge of even after funding.

Another crucial part to look into is the cost of each share while seeking funding. The cost of a share that the founders buy and the cost per share that investors buy should differ. This is an area that has conflict of interest since both parties are looking out for their benefits.

There should be an agreement drawn for the cost of each share that will resolve the issue in a just manner that does not favor either the investors or the founders.
The board should have people who are representing each group’s interest with the group that has the highest shares represented fully. The representation should be done fairly so that there is fair representation of interests.

Also, there should be an agreement on the cost of a pre-investment share and the post-investment share. In that, the company agrees on the cost per share after the investor has pumped in some money in the company.

Since the valuation of the company has gone higher, the shares will of course become expensive thus there should be an agreement on how the profits should be shared and the costing of each share for the parties interested in buying.

A founder should check out on terms and conditions of the investors shares. If the shares belonging to investors are open for sale or not. This is so as some investors lock their shares even when other investors are ready to invest in the company.

On the issue of who gets paid first, the founder should have an agreement with the investors since some investors choose preferred shares that empower them to always get paid first despite the risks posed to the company. The dividends should as well be clearly stated the rate at which they are awarded.

Some investors can seek to get dividends even while it is an expense to the company. Therefore, it is advisable for a founder to understand that part as well. There is always a pool of share set aside in case a company runs bankrupt it acts as the insulation for the employees. These shares should be indicated who or how they are going to be arrived at.

Generally, a term sheet is not always good news for the company seeking funding. A founder who is seeking funding should have knowledge in all areas in regard to funding that can make him have losses rather than profits. If one is not conversant with the information on funding as stated earlier, it is safe to seek legal help to avoid financial losses. However, people who are ready to champion the growth of any organization under acceptable terms are a perfect opportunity for any company to blossom and reach its full potential.

Inversk Live is Kenya's most incisive and informative platform to learn about business news, technology, markets, companies, startups, leadership advise, curated business and industry opinion, and affluent lifestyles.

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Business

How To Get Out of Startup Mode and Grow Your Business

Your vision is not improved by staying in startup mode.

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Entrepreneurs stay in startup mode way too long. Keeping a small business in startup mode requires you to stand on the brake. If you keep telling people you’re “just a startup,” you will never take actions for real growth.

It’s time to move from startup to grown up mode and from planning to doing. In two years, you want to look back at your startup phase as an important part of your thriving business’ history. You want to say, “I remember when I was sitting on my floor packing boxes myself. Now I employ over 100 people.” This is the mindset to move towards and here are five ways to do it:

1. Delegate. When you’re in startup phase, you are handling everything. To become a going concern you have to start investing in people to do tasks you can no longer do. Three quarters of all small businesses have zero employees, which underscores the resistance people have to delegating. You have to grow your business. It is a misnomer to think people cost money. A lack of production and failure to grow your businesscosts far more.

2. Pick your battles. Don’t get wrapped up for a week deciding on a logo when it ultimately doesn’t matter. Your brand will evolve as your business evolves, so your logo is likely to change. There are more important things to obsess over – gaining customers and making money. When you are hunting big game, don’t swat mosquitoes.

3. Get attention.The single biggest problem every startup has is becoming known. Your most important task is to get attention for you and your company. It’s the gateway to every dollar you raise. Muhammed Ali told the world he was the greatest long before anyone knew him. He got attention and infuriated people. But he proved himself, which turned criticism into world admiration. Get attention. Get critics. Then get admiration.

4. Change your pitch. Instead of saying “I own a small web design company,” say “I own a web design company like none other that guarantees your company increased sales.” Notice the difference? The first makes you seem small and insignificant. It makes no claim. The second makes you seem unique, confident and capable of being a money maker. Know how to pitch yourself and your business. Be ready to quickly explain what your company does that is better, faster and of value to the marketplace. Then, make big claims to the world.

5. Create urgency. If you start a business venture without setting specific timelines for action and achievements, you will be stuck forever with excuses. One of the biggest mistakes I have made in business was not operating with enough urgency. Being an entrepreneur is a marathon activity with lots of sprints. Win a lot of little races and you will provide your people and company with momentum.

We recently shot a television show at my office and I told the editing staff that I wanted rough cuts in half the time they thought necessary. Then I called every day for a progress update. This pressure to perform doesn’t lead to inferior products; it get products to be finished. Urgency is key to getting things done.

Remember: Your vision is not improved by staying in startup mode. It’s time to accelerate and become a going concern that is grabbing market share from the other bigger more established players. It used to be the big who ate the small. Today, it is the fast who eat the slow.

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Resilience Is The Key Ingredient In Entrepreneurship

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Resilience is a common trait among entrepreneurs. The degree could differ among individuals depending on their needs, but plenty of it is required at the start.  

The modern entrepreneur has plenty of resources at their disposal that the older generation wish they had a fraction of. Blogs, YouTube tutorials, incubation hubs name them, and yet still click on suspect links that urge them to make fifty thousand shillings in a week. What they fail to understand is that life on the proverbial fast lane takes years to build.

The ‘10,000 hours’ concept is quite simple. You work on a craft or skill by dedicating 10,000 hours to it then maybe you become a master at it. There’s no way around amassing a fortune unless through corruption or theft. This ethics go all across the board into pop culture where famous actors win awards after so many years of doing low budget films away from the limelight. Even TV reality stars gain their names by putting in hours of work. Resilience is what allows business owners and brands to keep at their ideas and not give up even when they make dismal profits.

The transactions of an entrepreneur do not end with sales of a product or service. An entrepreneur wants to learn the market and identify gaps for innovative products and services. Besides, how else will you spot a gap if you don’t painstakingly conduct due diligence?

Persistence spurs action. How, you ask? It presents opportunities to engage directly with your potential client. You are asking them to take a chance on your product or service and therefore will get used to being hanged up on or even insulted as you conduct one on one sales. If you strategically keep marketing you will recognize what works to your advantage and how to gain a profit.

The hustle will consume most of your time especially when you’re starting out. You will be knee-deep in accounts and before you know it, a week is gone! Then you scroll through your social media feed and see your friends colourful pictures in events you were dying to attend which might further depress you. Then your bills will jolt you out of your misery because they need to be paid which again comes back to your determination to succeed.

A successful entrepreneur will learn how to cut costs and plough profits back into the business for growth. The success of this decision could be affected by investors other than you. This is why vetting to find partners who share your similar ideas and goals is important.

The laser focus that comes with the resilience trait distinguishes people who start ten businesses and fail at each of them or focus time and energy on few at a time and do them well. This growth will help an entrepreneur decide if they will pursue it or if the business isn’t viable anymore. Spreading yourself too thin affects creativity and production if you’re a sole proprietor.

When you believe in the brand you’re building there’s so little that can move you. The confidence you have in your business inspires others to want to do business with you because they trust your person to person interaction.

When you narrow it down further to creative entrepreneurship, personal character defines individual artists even as they transact their art for profit. You could say the rules change for entrepreneurs in different fields but they actually remain the same. The setting may be less formal but still has peaks and dips like other sectors.

More young people are looking for freedom to express themselves creatively and have found a niche in this market. They have to constantly reinvent themselves and be extremely good at what they do to remain above the pack. They do all this and insist on ‘passion’ being the driver of what they do.

The creative industry is structured such that the profit earned from a service provided is paid to the ‘artist’ or through their representative. The split allowance is then ploughed back to learning another skill and the cycle continues.

At the end of the day it is all about resilience.

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How To Become A Contributor for Inversk

You do not have to be an entrepreneur for you to write for Inversk Magazine. You can be somebody who has worked for a big company.

Kimani Patrick

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Over the last couple of months, Inversk has grown to be a powerhouse community of entrepreneurs who read our business content on a daily basis. So far Inversk is Kenya’s fastest growing business magazine and our blog is the premier source of actionable business content for entrepreneurs.

As a result, we receive requests asking how one can become a contributor to Inversk and our bi-monthly magazine. So I’ve decided to write a post with information and guidelines that I could send to people.

One reason you may want to become a contributor at Inversk is to position yourself as an authority over your area of specialization, to boost your credibility as an entrepreneur as well as impact other entrepreneurs positively through sharing your knowledge with them.

If you want to speak directly to an audience of committed and curious entrepreneurs or wantprenuers, Inversk is the place. Also, it is good to note that we do not pay contributors for both our magazine or blog.

Please note that being a contributor at Inversk does not offer you an opportunity to promote your business. The platform only provides you the opportunity to put forward your best advice and help readers accomplish their goals. Our readers always come first. If you want to use the platform to promote your business that is not the proper way.

First and foremost, you do not have to be an entrepreneur for you to blog at Inversk. You can be somebody who has worked for a big company.

We are more interested in ideas and the way you present your ideas. You don’t have to have your own business to write for us but you do need to have expertise in the area you’re writing about. We are looking for subject expertise and personality which is very important as well.

What to write: At Inversk, we strive to share actionable advice on how to build a business. Pieces about starting businesses, growing businesses, ideas, productivity, small business, leadership, technology, management, customer service, Finance, and entrepreneurship resonates well with our audience.

We recommend writing actionable advise/tips that our readers can put to use right away. The advice should be clear enough for a reader to put into action. The best tips are often ideas our readers haven’t seen before but offer them a new solution to a common problem. Consider your personal experience. What problems have you overcome? What unique perspectives can you bring? Tell that story.

The ideal length for your article should be between 800 and 1,500 words for online content and between 400 to 2,000 for magazine content. This content must not have been previously published on any site or publication. The content must be original and exclusive to Inversk. We will reject any content already published on other sites or in print and further blacklist your from submitting any content to us.

The steps to take;

  1. Read our site, and get familiar with the content we share. Search the site for what you’re writing on, see what’s already been written and find your own unique angle.
  2. Come up with a great idea.
    It should be within your area of interest or expertise. We want you to write something that you would want to read yourself.
  3. Pitch to us
    Send our editor a proposal – not a full article. Our Editorial email is: kimani@inversk.co.ke. Keep it brief: a tentative headline; two or three sentences explaining what your articles will be about; and one sentence saying why you are qualified to write them.

Based on this proposal we will let you know within three business days whether to start submitting your articles. If you do not hear from us in that time, please assume that we will not be able to publish your submissions; you should then feel free to offer them elsewhere.

If you qualify to be a contributor

Submit completed articles.
Please don’t send us rough drafts and ask our editors to critique or tell you whether you are on the right track. Attach your article as a Microsoft word document and send it via mail.

What happens next?

Our editor will acknowledge receipt of your article the same day, and let you know whether it has been accepted for publication.

If it is, our editors reserve the right to edit the article at their discretion, including changes in the text, subheads and headline, to improve readability and maximize web traffic.

After that we will request you to send us your brief bio. This means: your name; the name of your company (with a link to your website); and your social media links.

We will then create an author’s account on our site and send you login details to start contributing at Inversk as well as the magazine.

How often should a contributor write? There is no magic formula or number. It depends on what you’re writing about and what message you want to send to readers. We have contributors who write twice a week, weekly, every other week and monthly. If you’re writing about a niche topic it’s probably best to scale back.

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