The death claws in investor funding contracts

October 2, 2018

Leaving a business that you co-founded, and that has grown to be valued at Kshs 20 million must be a hard decision. But what’s worse is leaving with nothing at all to show for your work, despite the success. For Ken Njoroge, Co-Founder and group CEO of Cellulant (an African digital payment platform), this was the reality with his first business, 3Mice interactive, a web solutions company which he exited back in 2004. When he made the decision to exit the business, just as he was in the exit process, his lawyer notified him that he and his partner had made a deal in their angel investor contract in which they essentially took on a $USD 500,000 loan. The terms of repayment stated that the angels could choose to recover their money from any partner who was part of the deal. This meant that if he started another business, should it become successful, the angels could choose to recover their debt from him despite him not working in the company anymore.
“For that investment amount, they could wake up and say hey, this Ken guy looks like he’s on the money. Let’s go after him.” Ken Njoroge
Therefore, after the painful decision to give up everything he had achieved so far, he couldn’t start to think of what next or act on his future plans until he found a way to remove himself from the deal. “Basically what I did was I traded in my shares and got exited out of that clause. I also negotiated for my team and thus those that wanted to come with me could and they did.” Ken said Even though this left him with zero in the bank, luckily for him, the process went well and he began his second company with no strings attached. This company became what we now know as Cellulant, a company valued at USD 105 Million. Be 110% sure of what you sign for when signing that term sheet for your business. Ken Njoroge, Founder of Cellulant, was a guest at Founders drink up held in January 2018. Get access to the full podcast for Kshs 250, email 

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