- Organisation: Seed Engine
- Player: Marc Elias, co-founder of Seed Engine, an accelerator and seed funder
- Est: 2012
- Visit: seedengine.co.za
The VC Route:
What is venture capital all about?
The venture capital model works on investment opportunity and size. VCs are investors looking to build their portfolio with a number of businesses, not support one business’s growth, so consider whether your business is high-impact and well structured, or whether additional support
Related: Seeding The Change
What kinds of businesses should go looking for VC funding?
VCs typically fund high-growth or high-impact businesses – so you want to be the next Twitter or Amazon and need institutional money to make it happen, not a lifestyle entrepreneur that’s going to stay in the SME bracket.
The business has already gained some traction and has a working model, but needs a large injection of capital to scale.
What’s the best way to approach VCs?
You first need to be robust and ready – which means you’re operating well, have systems, and the right team of people. Any investor is looking to de-risk as much as possible, VCs are no exception.
Then carefully research what each VC firm’s investment mandate is, what’s in their current portfolio, who’s on the board, and what their investment tools are.
Details like these will help you align your pitch. Successful funding comes through relationships and this doesn’t happen with cold calling, emailing, and copy-paste pitches.
What are entrepreneurs getting wrong when pitching to VCs?
Too often they’re only addressing the ‘What’, and not ‘Who’, ‘How’, and ‘Why.’ It’s very difficult to get investment for an idea so you need a working business model even if there’s no revenue model yet.
Then, entrepreneurs don’t always realise that the kind of investment they actually need is time and mentorship, rather than funding.
The next issue is communication. If you’re not able to clearly communicate, it’s indicative of a lack of understanding on your part.
Remember, VCs are investing in a jockey as much as they are in a business opportunity. VCs are high-level generalists, they’re relying on you to explain the details of your business, industry, problem and solution.
What advice would you offer entrepreneurs?
Don’t take rejection from a VC as a rejection of the business. They make decisions based on the information given to them and sometimes good businesses are rejected.
If you believe you’re sitting on the next big thing, focus on building relationships with other entrepreneurs. Learn from those in the same boat as you, so you’re better prepared for the next round.
The Bank Route:
Sanjeev Orie, CEO of FNB Business Value Adds, answers your bank finance questions.
What are funders looking for in a start-up?
An investor expects to earn a profit for the risk that’s taken. Accordingly, a bank would assess a start-up from four points known as the 4Cs: Character, capital, cash flow and collateral.
When is it time for a bank loan?
Loans should be taken when the business is in a position to afford the repayments. A loan should be to purchase items that are not for re-sale, rather productive assets like a delivery vehicle, equipment, and shop fittings.
A loan could be used to consolidate other, more expensive debt into a single monthly instalment that is easier to manage and at lower cost. Debt funding should be used to finance things that are going to make your business better by saving or making money.
What advice can you offer to start-ups using their personal lines of finance?
Be responsible when using your own money and carefully assess the risks and opportunities before spending. Using your own savings and lines of credit, and repaying the instalments, shows your commitment to the success of the business, and that it’s able to support your living expenses and debt from the profits made in trading.
What makes a business more appealing to a bank?
The bank needs to be reasonably certain that it‘s going to be repaid, that the business will be profitable, and run by people who are capable and committed.
It’s best that the business owners write the business plan and application for funding themselves, showing their insight into what is going to make the venture successful. The bank will ask questions about the assumptions in the business case, so know the answers.
What are common mistakes made when seeking funding?
A common mistake is asking for a bank loan too soon. It’s best to start looking for finance when the business has been trading for at least a year so there is a track record that will show the debt is affordable.
Don’t expect to get a loan at a prime interest rate either: Start-up ventures are risky and the bank will price the loan or overdraft accordingly.
Related: Planting the Seed
Is it truly possible to bootstrap a start-up?
Yes! Many businesses never need credit limits from a bank, as they’re able to grow through private capital alone. Private loans consist of seed capital, bootstrap funds and angel investments.