A few years ago, an African startup founder sought my legal assistance for an imminent investment deal. The founder had not disclosed prior dealings with legal documentation for the startup, which proved significant. The investor had presented a term sheet containing clauses that required careful scrutiny, including “Most Favoured Nation” rights and intricate liquidation preferences — terms the investor described as standard under Y Combinator’s SAFE (Simple Agreement for Future Equity) framework.
The startup was grappling with a funding drought, and the deal was presented as a lifeline. However, the negotiation unravelled when due diligence revealed problematic terms in the founder’s prior agreements. Clauses that seemed benign in earlier rounds created conflicts, highlighting the pitfalls of inadequate legal preparation. Despite the founder’s assurances that the earlier contracts were “simple SAFE agreements,” the absence of rigorous legal review compounded the risks.
This case is emblematic of a broader challenge: the reliance on free legal resources and DIY templates by African startups. These tools promise cost savings but often come at a hidden price.
The Appeal and Pitfalls of Free Legal Templates
Free legal templates have gained traction among African startups, driven by resource constraints and the perception of legal services as prohibitively expensive. Kyle Schutter, co-founder of Nairobi-based micro-VC fund Kuzana, recently criticized high legal fees for simple agreements. Taking to social media, he questioned why a Kenyan law firm charged $4,500 to draft a SAFE agreement, suggesting that lawyers could simply adapt templates from Y Combinator’s website.
Schutter’s post resonated with many in the startup ecosystem. “Has anyone made a database of Kenyan contract templates [including] SAFE; shareholders agreement; stock option agreement; what else should there be?” He asked, positing that such a resource could lower barriers to investment in the region.
While his concerns may be valid, his critique also revealed common misconceptions. While SAFEs are touted as straightforward instruments, adapting them to local legal systems involves significant nuance. As Schutter himself noted, many lawyers he consulted had no direct experience resolving disputes involving SAFEs. But this lack of litigation history may reflect the high attrition rate of African startups rather than a guarantee of the documents’ robustness. Less than 5% of seed-stage African startups successfully advance to later funding stages.
SAFEs originated in Silicon Valley, designed to reduce friction in early-stage funding. However, transplanting these agreements to Africa without expert adaptation can backfire. Legal systems across the continent vary widely, and clauses that are boilerplate in one jurisdiction may be unenforceable or carry unintended consequences in another.
Amending a SAFE agreement to fit local laws fundamentally changes its nature, requiring careful legal drafting to ensure alignment with investor and founder expectations. “A poorly drafted SAFE in Kenya can unravel an entire deal, especially when the company advances to later funding stages,” my Nairobi-based colleague Margaret explained.
The allure of DIY solutions can also lead founders to overlook critical considerations, such as regulatory compliance, intellectual property protections, and governance structures. These oversights often surface at the worst possible moment: during due diligence for subsequent funding rounds or in the aftermath of a dispute.
The tension between affordability and quality in legal services is not unique to Africa, but its implications are magnified in the region’s nascent startup ecosystems. While initiatives to democratize access to legal resources are commendable, they should complement — not replace — professional legal counsel.
Startups should prioritize legal readiness as much as product development or fundraising. Investors, too, have a role to play in encouraging transparency and providing guidance on best practices. Some African VC funds now offer subsidized legal services or partner with law firms to standardize key documents, balancing cost with quality.
Legal professionals must also adapt to this evolving landscape. Offering tiered services, flat fees for routine documents, or subscription models could make legal advice more accessible without compromising quality.
The Bottom Line
Free legal templates may seem like a lifeline for cash-strapped startups, but their misuse can create long-term vulnerabilities. African founders navigating the complexities of investment agreements must weigh the true cost of these “free” solutions. As the startup ecosystem matures, the conversation should shift from merely reducing costs to fostering a culture of legal diligence — laying a foundation for sustainable growth and investor confidence.
Ultimately, there is no substitute for tailored legal advice. In the high-stakes world of startups, the adage holds true: you get what you pay for.
