Sale to BlackBerry leaves Movirtu founders unhappy

Dispute spurs controversy over VC investments in Africa

The recent sale of Movirtu to BlackBerry is fanning an ongoing debate in Africa over the role venture capital plays in companies doing business on the continent.

TLcom Capital more than doubled its $5.5 million cash investment in Morvirtu with the sale to BlackBerry, according to company insiders. Movirtu makes virtual SIM technology designed to let businesses avoid costs when a device is used for both business and personal use, among other purposes.

Though it is headquartered in London, Movirtu up to now has conducted most of its business in Africa. The mobile communications boom in Africa has led to a population that uses multiple SIM (subscriber identity module) cards, and has fueled a wide range of companies offering mobile services and technology in the region. Industry insiders on the continent think of Movirtu as an African business.

"The sale sees TLcom achieve a cash on cash return in excess of two times its initial investment in Movirtu made in 2010, which made TLcom the lead investor and saw the venture capital firm take on a key role in supporting Movirtu in transitioning from idea to mobile identity leader," said Maurizio Caio, managing partner at TLcom.

In the wake of the sale to BlackBerry, a dispute between the Movirtu founders and TLcom has caused consternation in the African tech community.

The company was founded by Nigel Waller, who originally held 75 percent of the business, and Elena Waller, who had 25 percent. By the time the company was sold, the two founders had exited management and owned less than 0.3 percent.

"We are unhappy and we received, as founders, a check less than a tenth of the salary of the CEO," Walker said.

The founders are disputing the sum they received in the wake of the sale.

TLcom's Caio said that the investment firm's goal is to enhance the value of businesses.

"The goal is to grow a successful business, not mismanage the company," said Caio. "We bring in capital and team and team is more important than the capital; as an investor, you want to align the team, get the right investment and move forward."

Stories of company founders who have ended up unhappy with their deals with VCs are rife in Africa, where the initials VC are sometimes disparagingly referred to as "vulture capital."

Entrepreneurs can get themselves into trouble if they don't understand the venture capital process, Ben White, the founder of VC4Africa, an online initiative formed to bring together investors and startups.

"The trick is to understand that any time the company requires cash, and you are not able to provide the capital yourself, you are most likely going to lose position in the company," White said in email. "Experienced investors know this and will be thinking past their initial investment and into the second and third rounds. They will want to prevent the dilution of their position (say initially 20 percent) given new money is put into the business."

The process of maintaining ownership and investment in a company means hiring lawyers and understanding how the VC process works, which is one of the biggest challenges for startups and growing companies, White said.

"Unfortunately, there are few really good startup lawyers active in the African space and even fewer startups with the resources to hire them," White said. "Entrepreneurs go into the negotiations without proper representation, and if they are not careful they can find out later why some of these terms are so important to understand in detail."

Movirtu was intriguing to many African entrepreneurs because the company has its offices in London and was expected to be savvy, in terms of how it negotiated with investors. The company is now expecting to expand outside Africa to other developing and developed countries.


Copyright © 2014 IDG Communications, Inc.

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