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Student Investor Built Their Business By Burning Their Ships

Three university students, Matthew Piper, Karidas Tshintsholo, and Tokologo Phetla, are proving you can launch an ambitious business with no capital in three months by leveraging networks and burning your ships. Here’s how they launched their start-up: Student Investor.

Tracy Lee Nicol

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Vital Stats

  • 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.

Related: Want to Start a Business but Questioning Your Passion? Try This

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

Student-investor

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.

Related: (Slideshow) Quotes to Fuel the Fire of Young Entrepreneurs

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.

Tracy-Lee Nicol is an experienced business writer and magazine editor. She was awarded a Masters degree with distinction from Rhodes university in 2010, and in the time since has honed her business acumen and writing skills profiling some of South Africa's most successful entrepreneurs, CEOs, franchisees and franchisors.Find her on Google+.

Attracting Investors

Want Funding? Finfindeasy.co.za Founder Says You Must Learn To Speak The Language

Darlene Menzies, founder of Finfindeasy.co.za and the successful recipient of multiple rounds of funding unpacks what she wished she knew the first time she pitched her business to investors.

Darlene Menzies

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I clearly remember my first large pitching opportunity over six years ago. It was an evening cocktail event organised by one of the legendary pioneers of South Africa’s venture capital (VC) community, Brett Commaille. It took place on or near the top floor of the Reserve Bank building in Cape Town. One of the reasons it’s so vividly etched in my memory is that I had to climb more than 30 flights of stairs to get to it because as a chronic claustrophobe I don’t do lifts.

After reaching the right floor and catching my breath I stepped into a room full of 30 or so high net worth individuals — my introduction into the new world of Angel and Venture Capital investors.

Looking back, I wasn’t as nervous as you might expect, partially, I thought, because I had prepared well and I whole-heartedly believed in the product I was pitching. But in hindsight, I realise it was mostly because I was wonderfully naïve. There are some benefits to being a greenhorn.

The pitch itself went well, I had been briefed to keep it simple and short. I described the solution we had developed, the problem it was addressing and what the size of the potential market was. I spoke briefly about the competitors and what our differentiators were, what the business model was and shared our go-to-market plan.

I covered the size and pedigree of our team, as well as my skills and experience as the founder (aka the jockey) and ended with details on how much money we were looking for and what we would use it for. I was relieved when it was over and felt confident about my delivery.

Related: 6 Money Management Tips For First-Time Entrepreneurs

A bunch of hands shot up, which was positive. I felt encouraged; the hard part was behind me. Or so I thought. My nightmare began when I took the first question. “Great pitch, I love what you guys are doing. Please can you tell me a bit more about the traction you are getting, what your current burn rate is and how much runway you have.” My heart sank and I felt my cheeks start getting hot.

I didn’t have the foggiest idea what he was talking about. I could tell he wasn’t intentionally trying to embarrass me, but nonetheless his VC jargon made his questions sound like enquiries about cars and airplanes or something mechanical rather than anything I was working on. I put on a brave face and asked him if he would mind explaining to me what it was he wanted to know so that I could try and answer him. That was the start of a steep learning curve as I began to navigate the world of early stage capital raising.

Six years on, the South African start-up and venture capital community has matured and grown dramatically and there are many more entrepreneur events, training opportunities, start-up competitions and pitching coaching sessions, which has resulted in some of the lingo becoming more commonplace — even so, raising venture capital still largely remains a very foreign and intimidating world for novice entrants. Back then I wished I’d had access to a practical VC-made-easy glossary and step-by-step manual as a beginner’s guide. I’ve been threatening to write one ever since.

Terms you should know when looking for funding

After surviving my harrowing Q&A baptism of fire, I starting working my way through the world of term sheets and deal negotiating and came across many more acronyms and VC-specific terminology that I had to learn to interpret and understand. Below are just a few of the terms I would love to have known about and understood before my climb up those Reserve Bank building steps. There are many others.

Deck (or pitch deck) refers to the short presentation you will give to the investors. Guy Kawasaki, a well-known American investor, recommends his 10/20/30 rule as an easy guide for your deck. He says make sure your presentation consists of ten slides, take no more than twenty minutes to get through them and use a font that is no smaller than 30 points per slide.

See guykawasaki.com/the_102030_rule/ MVP (minimal viable product). This is a product developed with the minimum features to ensure it is sufficient to satisfy early adopters. The final, complete set of features is only designed and developed after considering feedback from these initial users.

Related: 5 Key Questions To Answer For Raising Funding

Traction

Traction refers to the number of people who have already started using your product or service and provides a means of proof to the investor that people want/need what you are selling. Traction is best measured by the number of paying customers acquired over a defined period.

Churn rate

If you are running a business that sells products/services via subscription, then potential investors will want to know your churn rate. This refers to the number of customers who bought your product and never continued using it i.e. those you lost after acquiring them. This figure impacts your growth forecasts.

Tip: Make sure that you have built the churn rate into your forecasts so that your numbers are solid.

Burn rate refers to the amount of money the business requires monthly to cover operating expenses. You can definitely expect to be asked what your current and anticipated burn rate looks like should you receive growth funding.

Runway refers to the number of months that the business has sufficient cash to continue to operate before it runs out i.e. if you have R200 000 in the bank and your burn rate is R95 000 and you are not expecting any immediate income from sales then you have two months runway.

What investors want to know is how long the business can keep going until it has to close. Once again expect to be asked your current runway and your future runway in terms of the amount of money it will take to achieve the desired numbers.

Hockey stick

This is a common term used to describe the kind of growth curve in a start-up that an investor is keen to see. It refers to the exponential growth of things like users or page views, but mostly to revenue, which is projected to occur once a particular inflection point is reached. Early stage investors like to invest before this point is reached and then to sell their shares once the hockey stick growth is achieved.

Related: How To Raise Working Capital Finance

Exit strategy

Venture capitalists only plan to invest in your business for a limited time period, usually between five and seven years, before expecting to receive their returns. An exit strategy is a planned approach to them leaving in a way that will maximise their benefit and minimise damage. A typical exit strategy is a plan to sell the company once it has achieved its anticipated growth targets. In this case they may want to know who you foresee would be prepared to buy your company.

Term sheet

The term sheet is the document presented to the start-up by the venture capital investor once they have decided they would like to invest. It outlines the terms by which they are prepared to make the financial investment in your company. You are entitled to negotiate the terms with the investor before reaching agreement. The signed term sheet is not legally binding, unless stated, but rather it contains the final terms of the investment that will be used to draw up the legal documents for the deal. Always seek legal advice before signing a term sheet.


Do your research

My encouragement to entrepreneurs who are looking to raise venture capital is to have a coffee or two with a few seasoned founders who have already done deals in order to get firsthand insights about what to expect when you engage with VCs — from the time you land the pitching opportunity to when you sign a deal and get the money and everything in between.

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Attracting Investors

The Investor Sourcing Guide

How to attract and obtain investors to your established, high-growth business.

Greg Morris

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As an established, high-growth company, you may find that you need to source capital, identify a mentor, or work closely with other affiliates to prosper. In this case, partnering with an investment holding company can be a valuable growth tool.

So, what should you do if you want to be acquired by a holding company?

Read this.

1. Research everything

If you’re considering a long-term investment partnership, make sure you conduct substantial prior research. There may be many potential investment partners out there, but each has specific venture and industry directives. Get to grips with these.

Related: Is Venture Capital Right For You?

2. Be candid with yourself

The amount of capital that you need will affect which holding company you choose. In particular, you’ll need to understand what your risk profile looks like relative to the returns you expect to provide. This will also help you to source, entice, and keep the attention of the most appropriate partner.

3. Identify your must-haves

Any investment partner you choose is likely to be able to provide you with funding, a broader network, and economies of scale. Beyond these, however, you’ll need to decide on your most important benefits (must-haves), so you can target the companies that can offer you the best fit.

4. Spell out your funding plan

You’ll need to be very clear on how you plan to spend the funding you get from your investor. This plan should stipulate, in particular, how you plan to grow.

Related: 5 Key Questions To Answer For Raising Funding

5. Scrutinise each investor

Make sure to analyse your potential investors’ investment history, so you can get a clear idea of where your interests are aligned. Look specifically at things like:

  1. Where investors’ get their funding
  2. What their investment track record looks like
  3. What their investment directives are
  4. Their appetite for risk
  5. The returns they usually aim for

The crux of the matter

Research is essential, no matter which holding company you hope to be acquired by. This will help you to find, attract and retain an investor who gives you the funding you need, and lends you the support to be innovative, productive, and profitable.

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Attracting Investors

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.

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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.

Related: 10 Tips From The Dragons Of Dragons’ Den SA

2The Numbers

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

asking-for-business-funding

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.

Related: Dragon’s Den Polo Leteka Gives Her Top Tips To Attract Growth Capital

5Sell Yourself

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.

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