- Players: Matthew Piper, Karidas Tshintsholo, and Tokologo Phetla
- Company: Student Investor
- Est: August 2013
- Visit: www.studentinvestor.co.za
It all starts with a parable: A Persian captain took 50 ships with 500 men and landed on enemy shores. He was greeted by 50 000 soldiers. Knowing his men would flee in the face of such odds, the captain burnt his ships giving only two ways out of the battle – victory or death.
“This is the philosophy on which we built and launched Student Investor,” says one of three co-founders, Tokologo Phetla.
In August 2013, they came up with the ambitious plan to launch a free financial education magazine aimed at students by February 2014. With six months to go, absolutely no money, backers or advertisers, they struck a deal with a print publisher to print their first edition anyway, with first payment on 15 January 2014.
They’d burnt their ships. They’d committed to a print job of R60 000, and they had no other option but to make it work, and for that they needed an investor if they had any hope of turning Student Investor into ‘the Facebook of South African investing’, as they call it.
On the hunt for an investor
“Tokologo and I have corporate scholarships to UCT,” explains Karidas Tshintsholo. “We knew our plan was ambitious and expensive, and we needed investors who’d buy in to our vision, so we leveraged the networking opportunities our scholarships afforded.”
Rewind to high school, Tshintsholo’s school had participated in an MPC Reserve Bank challenge. The co-ordinators had been impressed by his entrepreneurial spirit and put him on their mailing list for special events.
Jump to university, and with their Student Investor vision in mind, Tshintsholo, Phetla and the third co-founder, Matthew Piper, applied for and gained entry to the Allan Gray Orbis Foundation that promotes and mentors high impact entrepreneurs in the making.
This gave them multiple opportunities to mingle with prospective investors and make their pitch.
“Come December I was invited to a networking event, gathered some head honchos around and gave the elevator pitch of my life. As it happened I had managed to impress JM Busha of JM Busha Investment Group. He asked for more information and I gave it all I had.” says Tshintsholo.
Selling the idea
Actuarial Science student, Tshintsholo and Business Science student Phetla both came from disadvantaged backgrounds, where poverty was the norm in their communities. Coming together at UCT and meeting Piper, another Business Science student, the three discussed the social and economic impact of the existing low level of financial skills in youth and greater society.
“There’s no sense of wealth creation or building towards something. Many spend most of their income on consumables, by the end of the month there’s no salary left, and even worse, at retirement there’s nothing,” says Tshintsholo.
“We wanted to make a contribution to the country by teaching the importance of saving, and provide a savings mechanism to make that happen,” says Phetla.
“The primary reason for this is that most people don’t know what’s out there. Asset firms tend to cater for the wealthy, bank interest is too low, and there isn’t a culture of investing to create wealth.
The first step for us was education, in the form of an educational magazine, and the second step was to provide an investment product that removed bureaucracy and catered to the needs of student investors – no initial or exit charges, minimal management fees, flexibility to withdraw, minimum investment of R100 monthly, and annual returns of 14%,” says Tshinstsholo.
Down to the wire
It was the vision and social benefit of Student Investor that was going to win backers and how they managed to get a publisher to agree to print their magazine before it was paid for:
“We had to pick our partners carefully. We’d done our research and we knew CTP Printers supported young entrepreneurship and we sold them on our vision,” says Phetla. Although they’d secured endorsements from Standard Bank, Bloomberg, Allan Gray, and FNB; and Business Day’s Peter Bruce had agreed to contribute material for the magazine, they still had no money.
Then, one fateful day in December 2013, Phetla received a call from Tshintsholo. “Karidas was now completely broke from travelling the country pitching to corporates and investors. He called and said he had an interested investor but couldn’t afford to travel to meet him, so I agreed to do it instead. It was Mr Busha.
“He’d decided to back our magazine, and he’d chair our board with 25% equity, would mentor us, and his firm would provide the fund for our investment product which would launch in July 2014. It was a day that changed our lives!” says Phetla.
Securing an equity partner
“In the end, securing our investor came down to two things: Our vision is to make a contribution to South Africa that will result in wealth creation and consequently real freedom, as it’s personal wealth that buys you real freedom. It’s a vision that Busha strongly believes in himself. Secondly, we’re able to monetise the business.
The magazine generates revenue from advertisers, we sell newsletter bundles to corporates, giving them access to a database of 10 000 students looking for recruitment opportunities, and with the investment fund we’re able to charge a small management fee.
“We were able to break even after six months, but we also believe in building the right foundations and a sustainable business first, the money will come later. So we’ve spent the university holidays in 2014 establishing sound business infrastructure, defining people’s roles, creating systems so things run themselves, and developing investor planning for 2015,” says Tshintsholo.
Some unexpected bumps
Without investors, the mainstay of print publishing is advertisers. “That was a challenge we weren’t expecting,” says Phetla.
“Given that we teach finance, our market of 60 top schools and five universities around the country, and our ability to recruit graduates for corporates through our newsletter database, it made perfect sense in my mind to approach a bank’s student loan division, for example, and ask for advertising. I couldn’t understand why they’d say ‘no’,” he laughs.
“Securing advertisers takes a lot of hard work and takes much longer than we had anticipated. It’s also important to speak to the right person, particularly in corporates where there are many stakeholders involved and lengthy decision-making processes.”
Top tips for young entrepreneurs:
- There’s no failure in starting a business. There’s only failure where you don’t learn the lessons.
- Burn your ships. When you have a backdoor, you’re not fully invested in succeeding.
- Have a big vision and find large brands singing the same tune as you.
- Use your connections to introduce you to investors.
- Leverage your student base to generate interest and build a database.
- Develop mentorships with your partners and investors.
- Be patient and persistent.
- Leverage ’nerd‘ friends to keep you up to speed on lectures and assignments.
- Clarify roles of those involved and define who your leaders are.
6 Great Tips For A Successful Shark Tank Pitch
Whilst most of us are unlikely to appear on television shows such as Dragons Den or Shark Tank there is a lot we can take out from watching these programmes.
Whilst most of us are unlikely to appear on television shows such as Dragons Den or Shark Tank there is a lot we can take out from watching these programmes. Entrepreneurs will often need to promote their businesses to prospective customers, lenders, investors, employees and even suppliers.
All stakeholders would like to know with what and whom they are dealing. They will need to assess risk and will try and evaluate the business against others who are competing for those same funds.
1Know Your Product
You should be able to describe your business within 60 seconds, in a confident and positive manner. Let the stakeholder know what particular problem your business solves which makes it viable and attractive.
Your brand and how you intend to develop it is important in determining whether they will invest or lend you money. Share critical information with them such as large customers, patents and trademarks and details of forward orders.
If you are looking for funding or investment, make sure you have the relevant paperwork to back up what you are saying.
You must have your numbers at your fingertips. A true and successful entrepreneur will know his numbers instinctively and be able to recollect and present them convincingly. Stakeholders want to know your turnover (sales) over the last couple of years, your gross profit and net profit.
Investors want to know what they are investing in and whether there is strong potential for their money to grow. Lenders will want to assess their risk — how are you going to repay the money? Moreover, you as the business owner, need to be sure that you will be able to make the required repayments.
You must know what your margin is, as this will largely determine your viability as a business. Margin or gross profit is the difference between the selling price of the goods and their cost and is usually expressed as a percentage.
3Know What You’re Asking For
Be clear as to the size of the investment you want to give away and how that determines the ‘valuation’ of the business. Therefore, if you wish to raise R200 000 for 10% of the business, that means you value the business at R2m — be sure you can back that up or you will get taken apart.
4Have a Business Plan
The best way to fully understand your business is by way of having a detailed business plan, which has been prepared whilst working through every facet of your business, from the original idea to the finished product.
As the business owner, you need to live this business plan and be able to use it as your daily guide to success. Develop it, change it where circumstances require it, but most importantly know it and understand it.
In this way, you will be able to deal with most of their questions, be they about marketing, research, international expansion etc. It is also a good idea to know your competition and what they are up to.
In most interactions, you the entrepreneur, are selling yourself. Whether it is an investor, lender, customer or prospective employee, it is their impression of you and your capabilities which ultimately determine whether they want to work with you.
Be confident, defend your position where required, as you will need to parry some blows but do not behave arrogantly.
6Learn From Your Mistakes
Many entrepreneurs who have presented to the Shark’s Den and not been able to garner investment have turned their business into great successes. You need to be able to learn from the experience, and if rejected, bounce back even stronger.
3 Things You Must Have In Place To Get That Start-up Bank Finance
If you’re planning to secure funding for your start-up, you need to put the right foundations in place.
The South African landscape for raising finance is tough for any business, with stringent lending regulations. Here are three areas to focus on as you set up your start-up to ensure you’ll qualify for a loan or equity funding.
1Securing a Market
Most SMEs I have mentored or advised start with expressing how big the total market size is for their product or service, but, while this is important to understand, the big question is: What percentage of that market will you attract and how?
Look at the ‘how’ first and work your numbers backwards. For example, if you secure a R10 million contract to supply an item that has a market size of R37 billion you are capturing only 0,03% of the market. However, if you’re able to cover your monthly expenses (including your loan repayment) and make a profit, that’s what counts. You should be able to show this contract or letter of intent to procure, which shows how and where you will find this market.
2A Strong Team
When you’re starting out you’re likely to be the sum total of your team. If you’re going down the entrepreneurial journey alone, make sure you have identified who will mentor and guide you through the areas you don’t have competencies in and cost this into the business start-up and running costs.
Focus on who in the business is going to:
- Sell and market: Do they have the necessary skill, network, product and market knowledge?
- Control the money: Are they financially savvy and can they make sure that money is being used for the right things?
- Operate: Who has done this before? Can this individual manufacture the product or arrange the supply of goods or services, ensure quality control and sound human resource management?
Formalising your business is costly but necessary. If you don’t have a formal entity, shareholders agreements, loan agreements, financial statements, management accounts, tax compliance and so on, you will come short when looking to raise finance.
Understand these costs upfront and include them into your start-up budget — this will save you a lot of pain in the long run.
The truth is that finance is available for women who have the right business ingredients just as much (if not more — in the South African context) as it’s available for men and just as with men. And, resources such as these help to unpack and guide the core fundamentals that are needed to make business bankable/fundable.
Then it’s all about implementation and staying on track to translate all that you’ve done and all that you wish to do in a bankable business plan, and approach the relevant funder for your needs. The right business mentor can certainly help you on that journey.
If You’re Trying To Raise Money, Doing Any Of These 9 Things May Scare Off Investors
Avoid these mistakes and funding could be yours.
Most new and existing businesses can benefit from outside funding. With such funding, they can grow faster, launch new initiatives, gain competitive advantage and make better long-term decisions as they can think beyond short-term issues like making payroll.
Unfortunately, though, most entrepreneurs and business owners make several mistakes that prevent them from raising capital. These mistakes are detailed below. Avoid them and funding could be yours.
Making unrealistic market size claims
Sophisticated investors need to understand how big your relevant market size is and if it’s feasible for you to eventually become a dominant market player.
The key here is “relevant” and not just “market.” For example, if you create a medical device to cure foot pain, while your “market” is the trillion-dollar healthcare market, that is way too broad a definition.
Rather, your relevant market can be more narrowly defined as not just the medical devices market but the market for medical devices for foot pain.
In narrowing your scope, you can better determine the actual size of your market.
For instance, you can determine the number of foot pain sufferers each year seeking medical attention and then multiply that by the price they might pay for your device.
Failing to respect your competitors
Oftentimes companies tell investors they have no competitors. This often scares investors as they think if there are no competitors, a market doesn’t really exist.
Almost every business has either direct or indirect competitors. Direct competitors offer the same product or service to the same customers. Indirect competitors offer a similar product to the same customers, or the same product to different customers.
For example, if you planned to open an Italian restaurant in a town that previously did not have one, you could correctly say that you don’t have any direct competitors. However, indirect competitors would include every other restaurant in town, supermarkets and other venues to purchase food.
Likewise, don’t downplay your competitors. Saying that your competitors are universally terrible is rarely true; there’s always something they’re doing right that’s keeping them in business.
Showing unrealistic financial projections
Businesses take time to grow. Even companies like Facebook and Google, with amazing amounts of funding at their disposal, took years to grow to their current sizes.
It takes time to build a team, improve brand awareness and scale your business. So, don’t expect your company to grow revenues exponentially out of the gate. Likewise, you will incur many expenses while growing your business for which you must account.
As such, when building your financial projections, be sure to use reasonable revenue and cost assumptions. If not, you will frighten investors, or worse yet, raise funding and then fail since you run out of cash.
Presenting investors with a novel – or a napkin
While investors will want to meet you before funding your business, they will also require a business plan that explains your business opportunity and why it will be successful.
Your business plan should not be a novel; investors don’t have time to wade through 100 pages to learn the keys to your success. Conversely, you can’t adequately answer investors’ key questions on the back of a napkin.
A 15- to 25-page business plan is the optimum length to convey the required information to investors.
Not understanding your metrics
How much does it cost to acquire a customer? What is your expected lifetime customer value?
While sometimes it’s impossible to understand these metrics when you launch your business, you must determine them as soon as possible.
Without these metrics, you won’t know how much money to raise. For instance, if you hope to gain 1,000 customers this year, but don’t know the cost to acquire a customer, you won’t know how much money you need for sales and marketing.
Likewise, understanding your metrics allows you and your team to work more effectively in setting and achieving growth goals.
Acting like know-it-alls
While investors want you to be an expert in your market, they don’t expect you to be an expert in everything. More so, most businesses must adapt to changing market conditions over time, and entrepreneurs who feel they know everything generally don’t fare well.
A good investor has seen many investments fail and others become great successes. Such experiences have made them great advisors. They’ve encountered all types of situations and understand how to navigate them.
If you’re seeking funding, acknowledge such investors’ experiences. Let them know that while you are an expert in your market, you will seek their ideas and advice in marketing, sales, hiring, product development and/or other areas needed to grow your business.
Focusing too much on products and product features
When raising funding, you need to show you’re building a great company and not just a great product or service. While a great product or service is often the cornerstone to a great company, without skills like sales, marketing, human resources, operations and financial management, you cannot thrive.
Furthermore, if your product has a great feature, be sure to specify how you will create barriers to entry, such as via patent protection, so competitors can’t simply copy it.
Exaggerating too much
When you exaggerate to investors who know you’re exaggerating, you lose credibility.
One key way to exaggerate is with your financial projections as discussed above. There are many other ways to exaggerate. For instance, saying you have the world’s leading authorities on the XYZ market is great, but only if they really are the world’s leading authorities.
Likewise if you say it would take competitors three years to catch up on your technology, when investors ask others in your industry, they better confirm this time period. If not, your credibility and funding will be lost.
What do investors care about? They care about getting a return on their investment. As such, anything you say that supports that will be welcomed.
For instance, talk about your great product that has natural barriers to entry. Discuss your management team that is well-qualified to execute on the opportunity.
Talk about strategic partners that will help you generate leads and sales faster.
But, don’t go off on tangents that don’t specifically relate to how you earn investors returns, like the fact that you’re a great tennis player.
Likewise, conveying too many ideas shows you lack focus. For instance, saying you’re going to launch product one next year, and then quickly launch products two, three and four, will frighten investors. Why? Because they’ll want to see product one be a massive success before you even consider launching something new.
Investors have two scarce resources: Their time and their money. Avoid the above mistakes when you spend time with investors, and hopefully they’ll reward you with their money.
This article was originally posted here on Entrepreneur.com.
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