Tech Founders: Avoid These Reputation Pitfalls

Sponsored by

SDS 032: Tech Founders: Avoid These Reputation Pitfalls

Hey! thank you for reading issue 032 of Startup Definition Sunday (SDS).

SDS is the newsletter for new & aspiring 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 actionable tip you can implement right away

• 1 article you should read

• 1 gift for founders

Thanks to the folks at Yellow Brick Road for sponsoring today’s issue:

We use AI to scour the internet for stock ideas from billion-dollar hedge funds, professional analysts, millionaire investors, and more.

Subscribe to The Yellowbrick Road to start receiving the free, daily email with the best stock ideas.

Let's dive in:

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

Greetings!

Welcome to today's issue of SDS.

Writing to you every two weeks brings me great joy.

In case you missed the most recent issue, you can find it here.

I attended a small private senior high school with a graduating class of less than 140 people.

In such a tight-knit community, reputations held great sway, and individuals were known for who they were.

For me, that reputation was being the guy who studied obsessively.

Even now, years after high school, people still remember me for my obsession with studying, even if there wasn’t a test coming up.

The small size of my school played a significant role in shaping reputations.

Interestingly, a similar dynamic exists in the Africa tech ecosystem. This growing tech investing community operates in a continent plagued by low trust, making reputation a crucial aspect.

Surprisingly, many founders are unaware that investors can reject their startup based on an informal reference check.

Should investors rely only on investing in people in their networks? Absolutely not. 

But, it's an undeniable truth that no investor in Africa will support a founder without conducting a reference check.

Therefore, it is vital for every founder to be aware of 3 ways they can fail this informal reference check.

Former place of employment: One's former place of employment can heavily influence investor interest. Many founders embark on their entrepreneurial journey after gaining experience in various roles, be it in startups or corporate environments. However, some fail to realize that how they performed in their previous job or if they acted unethically by luring customers away from their employer can raise red flags for investors. Although investors might not explicitly ask about it, they will view your reputation through that lens.

Former employees: Founders who have built a team before seeking funding or have a history of being serial entrepreneurs should pay attention to how they treat their employees. It is easy to view employees as replaceable and mistreat them as a result. However, investors, like myself, have been known to seek out former employees to gain insights into the culture and team dynamics a founder has fostered. High turnover rates and negative reviews from former employees can make investors hesitant to support you.

Former investors: Founders must maintain good communication and transparency with their investors. Startups face the reality of high failure rates, but that doesn't absolve founders of their obligations to investors. Poor communication or making critical decisions without investors' knowledge can quickly tarnish a founder's reputation. One common example is when founders decide to pivot or shut down their business without informing their investors, who may only find out through media coverage. It is essential to involve investors in such decisions and leverage their insights.

Now, allow me to offer my two pesewas:

Reputation holds immense value across Africa, regardless of the country. This sentiment extends to the tech ecosystem, where reputation plays a significant role.

Every interaction with employers, employees, or investors should be evaluated through the "newspaper test":

If your actions were to make headlines tomorrow, would you be proud of them?  

If you or someone you know should be receiving 2024 issues in their inbox, consider joining SDS so you don't miss exclusive sections in future editions.

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

Emeka, one of my favorite writers in the Africa tech scene, provides valuable insights in an article titled: Follow the value: How to sanity check startup ideas. If you are not already subscribed, get access to the issue here.

Why is it worth your time? It’s the best time to build a startup in Africa. Valuations are decreasing, and investors are prioritizing sustainable businesses over hype and clout. However, many founders miss out on this opportunity because they are not building what people truly want. Emeka's article offers a clear template for evaluating your startup's value proposition.

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 an engaged 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)

I’ll see you in two weeks,

Jasiel