Why is talking about money in SA’s startup scene a no-no?

Trying to get an investment amount out of a startup in South Africa is nearly impossible. I used to think that it’s because the amounts are so little that the startups are a tad embarrassed to state publicly that, truth be told, their companies aren’t really worth that much.

But that cannot be the case. We know of companies that have received hundreds of millions in funding, but choose not to make the figures public. Why?

Surely this cannot be a case of culture, where we are too polite to talk about money because it’s seen as a taboo subject. If that’s it, then boohoo, get over yourself! As a journalist I want to know how much an investor is willing to pour into your business. For a few reasons:

1. It makes for a very sexy headline when I say “blah blah invests R200-million in nobody cares.”
2. It helps me assess the worth of your business.
3. It helps me determine your chances of success, because if blah blah is willing to give you R200-million, you must have something special going on.
4. More importantly, it helps me determine how good you are. Money says a lot about a company, and if there is real potential and your business model is solid, the money will probably follow.

Apparently funds are pretty tight in South Africa when it comes to investing and you have to be really impressive to get cash out of investors. But that’s debatable. There is an ongoing debate around trying to sell Africa’s tech to a very skeptical western investor market. But things are changing slowly. A South African financial services company exited to Visa for US$110-million and that figure was no secret. Big international company, interested, bought, and told us how much.

What’s up with this secretive nature?

Last year mobile communication platform Mxit could not wait for the world to know that it had acquired mobile social network builder, Motribe. We all cheered as the two companies finally formalised their already rocketing love affair. The whole thing was pretty high profile, and I wrote two stories about it. But not one of those stories gave a figure: Mxit wasn’t talking, Motribe wasn’t talking and Motribe’s investors 4Di Capital sure as hell weren’t talking. No, it was all hush-hush, and eventually we settled for a rumoured figure of R6-million.

Non-disclosure is quite big at Mxit though so perhaps we shouldn’t be too quick to point fingers at the Motribe deal specifically. When maverick entrepreneur Alan Knott-Criag Jnr bought Mxit the same thing happened. No one was allowed to know numbers.

Controversial money management system 22seven recently exited to Old Mutual for a very nice undisclosed amount. Really? How do I know it’s nice? Because they all seemed happy and pleased with themselves. Come on, tell me how much your investors made or lost off this deal!

When Instagram got bought for a billion, we knew. Heck even Foodspotting’s supposedly not so great US$10-million exit was still disclosed. Why are South Africa’s numbers so hush-hush?

It’s also not just the exits, it’s the investments. When Angel investment network Angelhub invested in Real Time Wine, a social wine discovery app that it couldn’t wait to share with the world, it gushed about everything except the numbers. This pattern continues with HealthQ, which supposedly got a significant amount of money from 4Di Capital. Then there is Rubybox, which is particularly tight-lipped about how much Hasso Plattner Ventures Africa is shelling out for its box of beauty goodies business. Moneysmart, another financial management system, couldn’t wait to talk about who its investors were (Johan Schoeman and GT Ferreira) just not how much they invested — we tried hard to get a figure from them, really hard.

Then there is Triggerfish, the Cape Town-based animation studio doing amazing things. It just got funding from Spier films, confirmed a mult-million rand deal to us, but was bound by an NDA not to give the exact figure.

Ask any of the startups… their answers are said in unison. “We’re not allowed.”

So, are investors holding this information hostage?

According to Brett Commaille, CEO and co-founder of Angelhub, there are a number of reasons why figures aren’t disclosed.

“Generally, whoever is acquiring a startup will decide whether or not to disclose the amount for a number of reasons. For a big corporate there are competitive risks to disclosing the amount of a strategic investment. Most companies disclose that which impacts them in a positive way — investment usually implies growth — nobody wants to provide the stick that they may be beaten with in future,” says Commaille.

“Giving exact amounts allows one to infer several things on the company and also will be used in future discussions and negotiations with next round investors. This is true in the US too, except far more investors are forced to disclose details in terms of their listing and regulatory requirements. When it comes to private investors, many simply do not want information on their investment amounts and portfolio in public. This is true whether the investment grew or is in trouble,” he says.

Okay, so there is probably a competitive advantage to non-disclosure for Old Mutual and Mxit. And there is the “it’s simply none of your business” remark from private investors.

“The information on past rounds has to be available to investors or companies interested in buying the company,” adds the angel investor. “The simple truth is that a next round amount on its own has little meaning unless you know the values of current versus past rounds of funding (is it an up or a down round?) which determines whether it is a rescue or a rocket ship.”

So there is a “it’s too low” element. This makes sense, but for startups with high amounts, surely that really helps in shaping the perception around the company?

It’s not all this way of course because a few startups have disclosed the amount of their investments. Most of the figures are quite high so that makes sense. But the bulk are competition winners the prize money is known and is part of the entry incentive.

My colleagues and I have been dissecting this for a while. Perhaps startups and investors just don’t want people hung up on the amounts but rather on the work that is being done. Is it all a case of letting the speed of the horse speak for itself rather than how much the owner paid for it?