Nairobi Expert Shares 6 Brutal Realities Founders Must Know When Taking Money from Investors
- African startups raised $1.4 billion (KSh 181.58 billion) in the first half of 2025, highlighting strong investor interest
- Nairobi-based startup consultant Samuel Kagwe warned that raising capital can be risky for founders and explained why
- Kagwe urged founders to stop glorifying fundraising and instead focus on building sustainable businesses and gaining traction
Elijah Ntongai, an editor at TUKO.co.ke, has over four years of financial, business, and technology research and reporting experience, providing insights into Kenyan, African, and global trends.
Africa has become largely attractive for venture capital and investors due to the rising number of startups.
Source: UGC
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The continent has plenty of market gaps in technology, energy, health, climate, among other fields.
This has led to a surge in the number of startups in the continent. However, many are starved of resources to scale their businesses and get their products to the market and the founders turn to venture capital (VC).
Notably, African startups have raised $1.4 billion (KSh 181.58 billion) in funding transactions in the first half of 2025, according to the latest data by Africa: The Big Deal.
The startup culture is obsessed with fundraising milestones and valuation headlines; therefore, raising capital is often glorified and celebrated as a badge of success in the startups world.
However, Nairobi-based startups development consultant and the Chief Exit Officer at Xb67.Africa, Samuel Kagwe warns that raising capital could be the shining beginning or the end of the road for founders if they are not careful.
Kagwe has worked with multiple early-stage startups in Africa, helping them navigate funding, growth, and survival.
In an exclusive interview with TUKO.co.ke, Kagwe shared six realities he believes every founder must understand before accepting a single shilling from investors.
"You can have a startup worth billions and you end up with nothing after the sale," Kagwe remarked.
1. You are not in control once you take the money
“The minute that money hits your account, the game changes,” Kagwe warns.
According to Kagwe, founders often make the mistake of thinking they are still in control even after taking money from investors. Many think they are in control because they may still hold majority equity in the company.
"VCs might not have majority ownership, but they often have control rights through board seats, veto on changes to the company on key matters, special terms that effectively make them the puppet masters behind the curtain. Have you ever heard of liquidation preferences? That is VC lingo for 'we get paid first, even if you don't.' That 3x liquidation preference in the term sheet means if they sell the company for $10M and they invested $2M, they get $6M before you see a dime," Kagwe said.
2. Funding does not equal progress
Kagwe is quick to challenge the common belief that raising funds equals progress when in reality it is a financial tool and not a guarantee to future success.
According to the consultant, founders get distracted from the goal once they get funding and they start focusing on burn rates and hiring sprees, instead of validating their product or satisfying customers.
“We need to stop celebrating raises. Capital can actually work as a deceptive sense of momentum. You hire faster, burn quicker, and start measuring success by runway instead of revenue. Zumi, an African startup, raised millions and then shut down in 2023 for lack of profitability. Having money does not guarantee a sustainable business. On the other hand, bootstrapped kiosks in Nairobi are making a profit every month,” he remarked.
3. Connect with other founders
Kagwe emphasised that brilliant pitches do not land VC funding and encouraged founders to network and connect with other founders.
He noted that many investors operate out of New York, London, or Nairobi’s leafy suburbs, far removed from the average founder’s network hence the need to know people in the ecosystem to get introductions.
"You are probably already three intros behind. A low hanging fruit for you is connecting with as many other founders as possible. Soon enough you will be in the network. Merit exists, but access matters more," he added.
4. No one is funding big ideas anymore
Forget about pitching your “big idea.” According to Kagwe, no one is funding potential anymore and investors are more interested in ventures that can show traction.
”I meet so many founders who think their idea is genius. In the startup ecosystem, there are probably 94 other founders who pitched something similar last week. VCs stopped funding ideas a long time ago.
What they want is traction, they want proof that real humans are using your product and ideally paying for it. Pre-seed used to mean "pre-everything." Now it means "post-product, post-early-users, and probably with significant enough monthly recurring revenue. Even here, in Africa, where markets are still maturing, investors want to see usage and growth," he asserted.
5. You can sell your startup and still walk away broke
“I know founders who sold for millions and walked away with nothing,” Kagwe said.
Kagwe warned that clauses like anti-dilution, drag-along rights, and stacked preferences can lead to tears and regrets for the founders if they don't fully understand the term sheet.
"If you sell your startup for $5 million (KSh 645.65 million), but your investors had a 2x liquidation preference on $3 million (KSh 387.39 million), that’s $6 million (KSh 774.78 million) owed to them from a $5 million (KSh 645.65 million) sale. You walk away with $0. That is not a hypothetical, it has happened to plenty of founders, especially those who didn’t read the fine print," Kagwe added.
He adviced founders seeking funding not to sign any term sheets without understanding the set conditions such as anti-dilution clauses, drag-along rights, and multiple liquidation preferences.
6. You can be a millionaire on paper
Kagwe ended on a more optimistic note and noted that raising capital and high valuation of startups can open access to more money and standing for the founders.
"Once you raise, and if the valuation is right, you’re technically a millionaire. It is possible to sell your shares in later funding rounds and thus turn your equity into cash, just like the VCs, even though it is rare for early-stage African startups.
So yes, theoretically, you are millionaire, and if you are smart, you could even borrow against your equity like the big dogs do. But don’t get high on your own supply, profit is key even then," Kagwe concluded.
How much funding did Kenyan startups get?
In other news, Kenya recorded its worst half year performance in startups funding since H1 2021.
Kenyan startups raised $227 million (KSh 29 billion) in the first half of 2025.
Startups in Kenya ranked third in funding, with 30 startups raising $100,000+ (KSh 12.97 million) and 16 raising over $1 million (KSh 129.7 million).
South Africa attracted the highest funding followed by Egypt in second place and Nigeria in fourth.
Proofreading by Jackson Otukho, copy editor at TUKO.co.ke.
Source: TUKO.co.ke
Elijah Ntongai (Business editor) Elijah Ntongai is an MCK accredited journalist and an editor at TUKO.co.ke's business desk, covering stories on money, the economy, technology, and other business-angled stories. Ntongai graduated from Moi University with a Bachelor's in Linguistics, Media and Communication. Ntongai is trained and certified under the Google News Initiative and Reuters Digital Journalism. For any correspondence, contact Ntongai at elijah.ntongai@tuko.co.ke.
Samuel Kagwe (Founder Reloid Ltd) Samuel Kagwe is an multipreneur, Innovator & business consultant. Kagwe is the director Kidgrasp Learning; Founder Couch Luxury; CEO Kuzaplus; Founder & Director RELOID Ltd.
