Venture Capital Funding: The Right Guys for the Job

Venture Capital Funding: The Right Guys for the Job

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THE INVESTEES
NIC HARALAMBOUS AND VINCE MAHER, MOTRIBE

Nic Haralambous and Vince Maher did not launch Motribe until they knew that they were absolutely ready. They were both permanently employed, and they knew that launching a start-up would mean a big shift in their lives. As much as they wanted external funders to enable the business to put new products out quickly and learn from the market, they wanted to be a lean start-up that would grow organically. They wanted to cover their bases.

The result? They created a lean start-up that they have kept lean, despite an injection of funds, which has enabled them to focus on developing new products and getting them to market quickly.

“We were able to prove that we could generate interest – and revenue – before we started expanding, which is invaluable for potential investors to see,” says Nic. “Together, Vince and I have a lot of experience and knowledge of the mobile market, its needs, gaps and consumers. We used this to develop our business idea, and it gave our investors confidence.”

In order for Motribe to grow even bigger – particularly into the global market, Nic recognises that the company needs to attract the interests of a foreign investor as well. “4Di focuses primarily on seed funding. Having an investor already on board makes it easier to find additional investors who want to see that the risk is spread out. But to break into the oversees market, we need to have offices based there as well, so that’s what we are currently focusing on.”

What investers want

Attracting 4Di’s attention, and now working on creating relationships with US-based VC funders, has given Nic and Vince a strong sense of the VC world and what investors look for. Here’s their advice for fellow entrepreneurs:

  • VCs like to hold your hand and guide you through the process. If you are unwilling to accept this involvement in your business, you shouldn’t be looking for venture capital funding.
  • There is a big difference between bootstrapping a business and having cash in pocket. As an entrepreneur, you need to know how to spend money from investors – and involve them.
  • Do your due diligence. You need to break down your financial models and prove them. You can’t just quote figures – you need to show how you reached those figures, and you can only be convincing if you really know what you’re talking about and you’ve done your research.
  • VC is not a loan – you don’t pay the money back. The investor will eventually be bought out, and that requires the business to have a certain growth path. Milestones will need to be met before you receive further funding, so be sure you can reach those milestones – or can explain why you missed them.
  • VC money can effectively be used for growth. You will need to explain exactly what you need the funds for, where every cent will be spent, and how this will help your business grow.
  • VCs are typically looking for a return on investment of between four and ten times their initial investment over a period of five years. Can you prove this is what they will get?
  • You need to show an exit strategy for either you or the VC from the word go – they are looking for a return on investment. How will they get it?
  • A profitable, income generating business will raise funding. If you don’t have that, you won’t get the cash. Go back to the drawing board and figure out what’s wrong. Are you approaching the wrong funder? Is there a problem with your business model? Do you understand your market? Have you done enough research?

THE INVESTOR

4Di

As an organisation that focuses on providing seed funding, 4Di is made up of early-stage specialists who focus on deploying smaller amounts of capital.

So how did the Motribe team attract 4Di? “I was already well aware of Vince and Nic and their activities in the mobile sector, so we connected through mutual circles,” says Justin Staford of 4Di. “The real trick is to be visible. We made contact by a private message exchange online, followed by an in-person chat, but Motribe was already networking, and that helped us get started.”

For 4Di, Motribe demonstrated domain experience and had recognised a gap in the market. The combination pointed towards a business that would work – which is of course what investors are looking for: will they get their money back, with interest? “Nic and Vince demonstrated passion, domain expertise and insight into the market,” says Justin.

“They wanted to tackle mobile platforms in growing emerging markets based on their hands-on experience in the field, which we agreed was a growing market opportunity waiting to be tapped. They also showed that they had the skills, knowledge and networks to build the technology and market it. This combination proved credible enough to move forward.”

When looking for a business to back, here are Justin’s top five things that investors look for:

  • An attractive founder team. The core characteristics of hungry commitment, passion and dedication, appropriate skills and domain expertise/experience are a must.
  • A sound business thesis and business model with appropriate potential are paramount. Can you demonstrate low costs, high leverage, the ability to scale exponentially, and how you will tap large, hungry growing, markets?
  • The ability to demonstrate why you can best execute on the business thesis. Do your research and consider every angle.
  • There will always be possible deal-breakers, so be aware of them. IP issues can pose a big problem. VC investors want to invest where the IP is owned and developed, for instance, and not in a pure operating entity, and they typically don’t want to invest in any IP that is encumbered in any way. VC investors also prefer clean entities without legacy encumbrances. Be prepared to answer these questions in your pitch.
  • Different VC firms have different focuses. If you pitch to the wrong firm, and your business does not suit their mandate, you will get a no – and a poor reputation to boot. – nadine von moltke
Entrepreneur
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