Builders and Talkers: The Fallacy of the Grant vs Investment Debate

A bunch of people are talking about where the money comes from that funds the tech startups and/or the ecosystem in East Africa’s tech community:

Most of the people talking haven’t actually built anything – they’re media, analysts, investors or grant-giving organizations.

A few are entrepreneurs – and I’m not talking about the type that thinks that is a sexy title and who wave around a CEO business card – I’m talking about the real entrepreneurs, the ones who are in the trenches, finding the right talent, securing funding, battling it out for clients, and shipping solid product. Too few of the voices we hear are of this type.

The debate is skewed. You’re told that money is evil if it is free (grants), that it’s only pure if it comes from an investor (angel, seed, VC). That if you get grant money that it will take you off focus and derail your business. Sure, this is a danger. It’s also a danger that you get a VC who gives you money, and who doesn’t understand the market, our region, or something else about your business and forces you to go off focus and derails your business as well.

The truth is, that as a leader of a company, your job is to decide what is the “good” money and “bad” money. This isn’t some academic or theoretical issue, it’s real life or death decisions that you stake your company on. When you can’t pay payroll and have to take a loan from the bank at 24%, you’ll take it to keep the business alive. When you’re starting up you might go for those piddly $15-25k grants that everyone seems to think grow on trees (but don’t). When you’re at that stage where you have real success, but now you need to expand much further, you’ll deal with the slick-talking VCs in order to work out the best deal for your future. It’s just how it works.

This argument of grant vs investment money is a false dichotomy – neither is pure. As a leader of my own business, if someone offers me free grant money that I believe is in our best interest, I will take it every day of the week. I measure it in the same way that I would if a VC wants to give me a dodgy deal – I refuse it.

If it was easy, everyone would do it

As a tech entrepreneur in our region, be objective and pragmatic. Be wary of pundits, analysts, investors, NGOs and anyone who hasn’t built something of their own. The entrepreneur life you’re signing up for means you’ll work harder, sweat more, stress more and feel both great euphoria and defeat. It’s hard, grinding work, and those who push hardest, longest and the most creatively win. And if you win, the prize is big, so it is worth trying for.

Everyone has an opinion, but few have tried, and fewer have built something that succeeds. Your job is to think bigger, and more creatively, and to boldly aim for success. Few have the courage it takes to go this route, so remember that and make sure the person you’re talking to actually has the qualifications worth your time to listen to.

However, do listen to those who have been there, they are the rare ones who have made it through the battle lines and won, seek them out. The best mentors are rarely found in the institutions that have the money. A few investors have been there and have the experience, not many. Even fewer on the NGO and foundation side.

Here’s a better idea. If you can build your company without taking investment money, do it. There’s a fallacy in thinking that you need investment or grant money at all. Instead, try to do as much as you can, get as many clients as possible, grow fast, build a great product, and then only when you actually HAVE to have it, should you go for any other outside money.

9 thoughts on “Builders and Talkers: The Fallacy of the Grant vs Investment Debate

      1. Sam Gichuru

        Now we are talking…. I would add, entrepreneurs should always look for Smart Money. Money that comes with experience (in entrepreneurship not business school and management in multinational) and networks.

  1. Ben White

    I would add that there really is no ‘free’ money. If you are able to get some support from an NGO or non-profit they might not be expecting a financial return, but more likely seek return as it relates to social or environmental impact. This is where the debate comes in, for so far that focusing on impact can sometimes lead the entrepreneur to take their eye off the financials. And in the end the financials always win because without them there is no company, and without the company there is no impact. So entrepreneurs can get turned around on this sometimes and get confused.

  2. Ted Rheingold

    Great post.

    I’ve been comparing this discussion to US ecosystem. In the US you can compare grant money aka ‘easy money’ to a) VCs that place big bets not he table so as 1 of them can hit big and b) Large companies such as an AOL that can take massive losses in certain segments because it’s okay to be unprofitable while growing new business.

    And in the US you can compare investment money to good VC aka “smart money”. These businesses are running lean and hard, but they still have to compete against overfunded under qualified businesses or against behemoth businesses with diverse balance sheets that can withstand extended segment losses.

    Easy money businesses suck up customers, marketing attention, hr talent, vc dollars, etc. It sucks. But there’s no making them go away so all you can do is hunker down and execute.

  3. Sir Nigel

    Excellent advice.I live in Zim. We tend to be more polarised than most countries I know. The issue/question of ”who funded your venture’? is one which tends to pop up in conversation more than it needs to I feel. The funder is often more important than the venture itself :-(

    The issue of the salaries is REAL. Finding that balance is interesting for the entrepreneur.

    Aluta Continua

  4. Bernard

    Great inspiring post. Been ignoring the debate for awhile, now I know why: There really is no debate.

    1. kiwanja

      Some great points here, Erik.

      I would expand on your final point to say that timing is crucial. I’m increasingly thinking that money, too early, can kill innovation. Many of the constraints in which a product was conceived and developed – and which provide it’s DNA – are removed. I still maintain to this day that FrontlineSMS still exists because I took no funding of any kind for the first two years.

  5. David K

    Money is money and I’m not sure there’s actually a debate. Each comes with its own baggage and if there’s only one option – trust me, you’ll take what’s on the table in order to meet payroll. I think what many people find annoying is how hard it is to raise money and there’s a general sense that grant funding comes easy if you know the right people. There are just not enough VC deals happening on the continent — something to the tune of 100 in 5 years (and I’m more likely wrong about the number) is disheartening. The only thing that makes grant funding ‘evil’ is insufficient due diligence which opens doors to issues like fiscal irresponsibility and ultimately failure.

    tldr; neither is good, neither is bad and any debate is a straw man argument for lack of real vc funding

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