Opening up your capital to finance growth is an irreversible decision. Many African entrepreneurs end up as a minority in their own company for want of anticipating dilution mechanisms and the clauses of shareholders' agreements.
The trap of excessive valuation
Many entrepreneurs' instinct is to negotiate the highest possible valuation to dilute as little as possible. This is a strategic mistake.
An inflated valuation today creates unbearable pressure tomorrow. If your company doesn't perform up to that valuation within the following 18 to 24 months, your investors will trigger protective clauses — and that is where you lose control.
A reasonable valuation with favourable terms is better than a flattering valuation with unfavourable clauses.
The clauses to watch closely
The liquidation preference clause
It gives the investor the right to recover their investment first — sometimes with a multiple — before the founders receive anything in the event of a sale. A "participating" clause can wipe out your share entirely.
The veto right over strategic decisions
Some agreements grant minority shareholders the right to block major decisions: hiring management, new fundraising rounds, changes of strategy. Check precisely the list of decisions subject to this right.
Anti-dilution clauses
In the event of a new round at a lower valuation, they allow the investor to increase their share without injecting new funds — mechanically diluting the founders.
The drag-along
This clause forces minority shareholders to sell their shares if the majority decides to sell the company. Well framed, it is normal. Poorly framed, it exposes you to a forced sale at an unfavourable moment.
The alternatives to opening up capital
Before giving up shares, explore the alternatives:
- Senior debt: a classic bank loan. You keep 100% of the capital.
- Quasi-equity: convertible bonds, participating loans — hybrid instruments that resemble equity without immediate dilution.
- Asset-based financing: lease-back, leasing — you mobilise your assets without touching your capital.
- Grants and development funds: EIB, AFD, BDEAC funds — non-dilutive financing available for certain sectors and projects.
When opening up capital is the right decision
Sometimes, diluting is the best option — when your need exceeds your borrowing capacity, when the investor brings an irreplaceable network or expertise, or when your market demands rapid growth that only a capital injection can finance.
In that case, the question is no longer "should I open up my capital?" but "to whom, at what valuation, and on what terms?".
What we advise
Never sign a shareholders' agreement without having it reviewed by an independent adviser — not the investor's adviser, yours.
At Mboa Make, we step in at this critical stage: structuring the deal, analysing the terms, negotiating the clauses, and aligning your long-term strategy with the investment conditions.
Because what you sign today, you will live with for the next 5 to 10 years.
