Fiduciary Responsibility for African Startups

SDS 023: Fiduciary Responsibility for African Startups

Hey! thank you for reading issue 023 of Startup Definition Sunday (SDS).

SDS is the newsletter for founders, bringing you clarity one actionable tip at a time.

SDS arrives every two weeks (you guessed it) on Sundays.

In every issue you can expect:

• 1 Definition of startup jargon

• 1 actionable tip you can implement right away

• 1 article you should read

• 1 gift for founders

Let's dive in:

(P.S. I'll never sell your information, ever)

Hello there!

I'm thrilled to share this issue with you! In case you missed the last one, you can find it here.

Before we delve into today's issue, I want to inform you about something Marge and I have initiated, which we believe could be beneficial for founders – bi-weekly office hours to practice your 5-minute pitch.

We commenced our Q4 sessions last week. If you missed the latest recorded session, you can catch it here.

Register here to receive reminders for the next session.

The topic on everyone's lips this week is fraud and governance in African tech.

Regardless of where you place the blame – investors or founders – there is a truth we should all acknowledge:

Every instance of fraud and governance risk involving African startups sets a higher standard for every subsequent founder.

As an investor, I know that expectations of founders will become more stringent.

So, what can founders do to meet these new, elevated expectations?

It all starts with fiduciary responsibility.

What is fiduciary responsibility?

Fiduciary responsibility: the obligation of founders and board members to make decisions that prioritize the success of the company and the returns of the investors.

5 unique ways to meet fiduciary responsibility

Investors expect that founders handle financial resources effectively, avoid actions that could result in conflicts of interest, and safeguard the company's value. It's crucial for founders to prioritize this aspect of their startup journey.

Here are five unique ways to fulfil fiduciary responsibility:

Develop a robust governance structure: Begin by establishing a strong governance framework within your startup. This involves creating a board of directors comprising experienced individuals who can provide guidance and oversight. Conduct regular board meetings and set up committees to monitor key aspects of the business, ensuring transparency and accountability.

If you don’t have a board of directors yet, I wrote about some common pitfalls to avoid. 

Implement effective financial reporting: Transparent financial reporting is crucial. Ensure you have accurate and timely financial statements that offer a clear picture of your startup's financial health. By implementing sound accounting practices and leveraging technology to automate financial reporting, you can save time and instil confidence in your investors. If financial reporting is not your strong suit, it's wise to seek the right support early on.

Here’s a great article with some insights on what investors expect .

Embrace risk management practices: Mitigating risks is essential for fulfilling fiduciary responsibility. Take a proactive approach to identify and manage potential risks that could impact your startup's financial standing. Implement risk management processes, such as conducting regular risk assessments, creating contingency plans, and obtaining appropriate insurance coverage.

Prioritize ethical conduct and compliance: Upholding ethical standards is vital for maintaining fiduciary responsibility. Implement a robust code of conduct in your startup that outlines expected behavior for all stakeholders, including founders, employees, and investors. Ensure compliance with all applicable laws and regulations to avoid any legal or reputational risks.

Maintain open and honest communication: Effective communication is key to building trust with your investors. Keep them informed about the progress, challenges, and milestones of your startup. Regular updates, both in good times and bad, will demonstrate your commitment to transparency and enable investors to make informed decisions.

It's worth noting that these five strategies are not recent developments. Perhaps, during the exuberant days of ZIRP, some founders and funders put fiduciary responsibility on the back burner. However, if our goal is to build world-class companies out of Africa, we can no longer overlook these aspects.

If you have learned something valuable today, consider joining SDS so you don't miss exclusive sections in future editions.

If you only read one thing this week, read this...

Microtraction’s Offiong’s in-depth analysis of the VC funding winter and its impact on African startups.

Why should you read it? Fundraising rounds are taking longer, and this article provides a clear perspective on how we arrived at this point and what the future may hold.

Founder's Corner

As an investor, I know how challenging it can be for founders to get noticed by angel investors, especially without the right connections.

That's why I created an inbound form to allow founders to share their decks directly with me. It takes less than 5 minutes to complete. By breaking the mold and providing an alternative way for founders to connect with investors, I hope to help level the playing field.

That's all for today! As always, thank you for being a fantastic reader.

Until we meet again in two weeks, here's how we can stay in touch:

• 🐦 Find me on Twitter

• 💬 Hit me up on Linkedin

• 💌 Email me

• 🚀 Sponsor SDS (Reply to this email)

Let's chat again in two weeks,

Jasiel