Navigating Challenging Investor Relationship in Ghana
Kendall Ananyi
Starting a company is fraught with unique challenges, particularly when expanding into new markets. As a founder, I experienced this firsthand when we took the decision to expand to Ghana. To become a Top startup company on the continent we needed to develop a playbook for future expansion before raising any growth-stage financing, and expanding to Ghana was key to gaining that experience.
Ghana’s telecom regulator requires 30% local ownership, regardless of the investment size, similar to telecom laws in other countries like Canada, where 80% ownership must be Canadian. We looked to our Ghanian investor and hoped to leverage their local expertise on our first geographical expansion. Y Combinator (YC) typically mandates that subsidiaries be 100% owned by the US parent company, as outlined in their seed-stage documents. We approached YC to allow local investors in our Ghanaian subsidiary due to this regulation. Although YC had never granted such approval before, they agreed given the circumstances. In hindsight, we should not have been the first startup to request this exception.
Soon after, we encountered challenges with the investor, particularly concerning their approach to securing a license in Ghana. They, along with another investor, proposed a creative solution of engaging a consultant for a fee. As a US-based company, we refused to engage or pay any government official, as it conflicted with our policies. I decided to end all discussions regarding the license after receiving the agreement.
There is no creative solution to applying for a license in a regulated industry like telecoms. The process is straightforward: apply if you meet the criteria, follow up, and wait for approval. If denied, the regulator would share the reason for you to address before reapplying. We’ve followed this process in three countries. In my next quarterly update, I emailed all our investors, stating we would halt expansion to Ghana and explore other African countries to reduce pressure on our expansion team. We progressed independently.
Shortly after I declined their request, we needed the investor’s approval for our budget. We had a series of back-and-forths, as is typical with budget discussions, before finally receiving approval. I messaged him on Christmas Eve, hoping for a better relationship in the new year. However, the next year, they rescheduled meetings, arrived very late in one instance and would email that they wanted to step down.
Early in the new year, I wrestled with seeking advice from more experienced founders. Back then, there were only a handful of founder-CEOs who had started their companies before me and could help. I considered reaching out to a founder living in Ghana since the challenge originated there. I ended up not sharing the issue, thinking things would get better after a meeting in Ghana. In hindsight, this might have been the time to seek guidance with YC. Ultimately, I decided to continue trying to resolve the issues internally, but by mid year, we were not making any headway, and I decided to formally communicate with them, hoping we could move forward.
Later in the year, the investor recommended their own portfolio company as a payment provider for a major partnership expansion with a Big Tech company. My team had recommended using cash for customer wifi payments because it was too early to adopt a payment provider. I informed them that I could not influence any decision since it was a conflict of interest, as I was also an investor in the payment company. I emailed the tech company, and they sided with me.
By the end of that financial year, the distractions began affecting our Nigerian subsidiary, leading to a loss—the only one we’ve had in the last six years, even during the challenging COVID lockdown period when most businesses struggled.
I decided to pursue new financing for our next phase. We began fundraising and received a number of term sheets during the COVID lockdown. The investor sent us their own term sheet with terms that sought to change control of the business with additional board seats, dilute existing investors, and employee stock options would have been underwater. We politely declined, believing we didn’t need additional funding as ISPs experienced growth during the pandemic.
Shortly after the investor requested an investigation into an unfounded allegation in Ghana, demanding that an executive board member lead it. When the board insisted on formal approval, the investor conditioned their attendance of a board meeting on a statement. After the statement was released, the investor attempted to take corporate actions without board consent and their observer tried to delay starting the investigation they requested. They then used threats and abusive language, eventually resigning publicly and inaccurately claiming board approval. Despite this, the next day they demanded additional board seats similar to their termsheet and obstructing the investigation. The board signed the consent, allowing the investigation to progress, and we subsequently managed the company during the pandemic.
Despite our efforts to move past every issue, we always found ourselves back where we started in Ghana and having to face another issue with the investor. We were fortunate with the sequence of events that finally led to their resigning and putting an end to the relationship as it seems that every few months, one of their firm’s portfolio companies is either dealing with a CEO departure or another issue, often making the tech news.
My company has moved on, brought more experienced board members, signed more partnerships, gone on to break the 15-year jinx of scaling an internet provider across Nigeria and swung back to profitability in Nigeria. Recently, we achieved profitability also in Ghana, becoming one of the few consumer ISPs in West Africa that has achieved profitability in two countries.
We later learned that a company they invested in was acquired by a satellite internet provider, which now directly competes with us—an avoidable conflict of interest. Before accepting their investment, I specifically asked if they had an investment in another ISP, and they assured me their firm focus was Africa and they had no other investment in an ISP. Had I known their intentions with the other company and reconsidering YC’s initial advice against having investors in a subsidiary, I wouldn’t have agreed to have them as an investor, avoiding the challenges we faced in Ghana. We successfully launched and reached profitability in Ghana without needing much local investor support.
The journey of entrepreneurship is filled with unexpected twists and turns. My experience taught me invaluable lessons about maintaining ethical standards, navigating investor dynamics, and the importance of transparent communication. Despite the challenges, my startup emerged stronger, expanding our footprint and achieving profitability in multiple countries. This experience underscored the resilience and dedication needed to succeed in the startup world.