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Attracting Investors

Funding Solutions That Support Business Cash Flow

Before you look for a funding solution, you need to make sure your foundations are strong. In this regard, cash is king.

Nadia Rawjee

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Before you can focus on long-term strategic finance solutions to assist your business growth, the basics have to be in place. For many businesses, that means getting your cash flow right. There are also funding solutions that can support your cash flow needs. When I analyse a business and what funding solutions may apply, I always look at two fundamentals. We call them the Us: Usage and audience.

Usage: What is the money you are raising going to be used for? This could include:

  • Bridging and contract finance to execute tenders and contracts
  • Short term cash flow for: Stock, equipment, renovations, marketing, staff training, VAT.

Audience: Who will finance you, what are they looking for and what do they want from you in return?

  • Who will finance you? This could be anyone from corporate banks to bespoke financiers. Their willingness to fund is based on a range of elements that include:
  • Your needs
  • The state of your company from a profitability, compliance and collateral perspective
  • The sector you operate in
  • The customers you serve.

What are they looking for when raising cash flow?

Some considerations that will help your case include:

  • A minimum track record of one year. It gets trickier when considering a pure start-up, and the funder will look at the team and market very critically
  • Formalised entity
  • A minimum of R500 000 in turnover per annum

Related: Research-Backed Ways To Impress Anyone In Two Seconds

What do they want in return?

  • Prime linked interest rates. Company, client and director risk profiles could mean money costs you as much as 36%, but don’t despair — this is generally for short-term high-risk finance.
  • Surety or collateral. Every funder is looking for some form of security. Typically, the riskier the investment, the stronger the collateral needs to be. Funders can cover their risks in a number of ways, some include:
  • Immovable assets (e.g. property) or liquid investments.
  • Most institutions that provide bridging or contract finance will require you to cede the payments you are to receive from your corporate or governmental client, to a bank account that the lender has control over. This is to allow for visibility and repayment based on the agreement between the lender and borrower — it is referred to as ‘cession of debt’.
  • Retailers may be required to have a percentage deducted from payments received from a card POS system.

Related: Funding Your Business: Why It’s Critical To Keep Your Investors Involved

It’s important to remember that no two businesses or financing agencies are the same. Knowing your two Us will help you to navigate the landscape of funders that can lead you to a more cash flow positive phase in your business.

Nadia Rawjee has experience in industries ranging from FMCG to manufacturing and mining because of family interest and her involvement in an influential African network called Intra Business Network. Her skills lie in business analysis, business modelling and accessing developmental funding. She has a BCom degree in Finance and a BCom degree in Economics & Econometrics from the University of Johannesburg. For queries visit Business Funding South Africa.

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Attracting Investors

The 3 Most Essential Points To Keep In Mind For Your Next Accelerator Pitch

No surprise that a great source for inspiration and lessons on speaking technique are TED talks.

Dan Lauer

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Startup accelerators have been around since about 2005, when Y Combinator was founded in Cambridge, Mass. Since then, they’ve exploded in popularity – expanding from start-up hotbeds like Boston and Silicon Valley to assorted locations around the globe.

Milwaukee, though not traditionally known as a tech hub, is home to Gener8tor, an accelerator that recently launched an artist fellowship program. Sydney is an international city in its own right, but it’s also attracting tech entrepreneurs with its Future Transport Digital Accelerator.

And, while Cairo certainly has a rich history, it’s also preparing for the future of innovation with the Flat6labs accelerator, which celebrated its 10-year anniversary in 2018.

As the number of accelerators has grown, so has the number of applicants. For example, for the Ameren Accelerator, our own 12-week program for energy-tech startups here in St. Louis, we went from about 200 applications in 2017 to in excess of 330 this year. Such explosive growth, however, can be a double-edged sword for those hoping to earn a spot in an accelerator:

More opportunity may abound, but the competition is also stiffer than ever.

Related: Why You Need A Million-Dollar Pitch Before Your Start a Business

Standing out in a sea of applicants

Responding to the increase in applicants, accelerators these days are asking tougher questions: “How close are you to revenue?” “What’s the business model?” “How do we [investors] ultimately make money?” Therefore, if you’re one of the applicants, you need to not only know the answers to all these questions, but to deliver them clearly, succinctly and in a way that sets you apart. That’s a tall order, to be sure, but if you follow these three key steps, you’ll be on your way to nailing your pitch.

1. Cut out the “maybes” – focus on the facts

Most startups fail because they don’t solve a problem. Just look at Juicero, the now-famous startup that raised about $120 million before it shut down last September. That $400 juicer simply wasn’t filling a need, and as a result, couldn’t find a solid customer base. Juicero is not the first or the last company to make this mistake. According to an analysis by CB Insights, 42 percent of start-ups go under due to “no market need.”

Accelerators always want to know that there’s an actual customer need. In fact, this is critical. Don’t recite a laundry list of problems your solution might solve; instead, focus on the most important one – and detail step by step how you came to that conclusion. The best way to prove your problem exists is through market research. Engage directly with potential customers by conducting surveys on pain points, wants and needs. When you come with hard research in hand, accelerators will take you much more seriously.

2. Lay your cards on the table

cards-of-table

Once they’re convinced of the problem, accelerators want to understand your solution. That sounds simple enough. Yet according to research from Marketing Experiments, companies often struggle to identify and articulate their value proposition.

A good value proposition is easy to understand, concrete and unique; it doesn’t rely on fluff, superlatives and jargon. So state your solution, and more importantly, state how it’s different from all the other ones already out there. Ideally, people will be able to understand your value proposition in fewer than five seconds.

Take Uber’s value proposition, for example: “The best way to get wherever you’re going.” This simplistic copy accurately captures its offering. And its homepage copy expertly sums up what makes the service more appealing than a traditional taxi: “Tap a button, get a ride; always on, always available; you rate, we listen.”

Additionally, accelerators want to know what you, as the founder, bring to the table. Show up, add to the chemistry and culture and be an active participant. At the Ameren Accelerator, we specifically look for leaders who come in ready to roll up their sleeves and drive growth.

Related: 3 Components Of The Perfect Elevator Pitch

3. Stay on track and weave a story

There’s nothing worse than an applicant who drones on and on. Try to keep your pitch clear and simple. For inspiration, look at TED Talks. Though those speakers pitch ideas rather than businesses, they are coached to become master storytellers. Most talks are fairly brief – they can’t be longer than 18 minutes – but more importantly, they’re succinct. An analysis of the top 20 TED Talks showed that all speakers stated their “big idea” within the first two minutes. Follow this format in your accelerator pitch.

Additionally, rather than spouting off statistics to make your point, try telling a dynamic story, lacing supporting facts throughout. Stanford University professor Jennifer Aaker tested the power of stories through an informal study. She asked her students to give one-minute pitches and then had the others write down what they remembered from each pitch. Sixty-three percent of participants could remember the pitches that were stories, compared to the mere 5 percent who could remember statistics.

Since I started working in this field, I’ve seen enormous growth in the number of accelerators across the country and around the world. However, those who wish to participate in these programs are up against fierce competition, and gaining one of these accelerators’ coveted spots will take more than passion and a potential patent. By following these three tips, you’ll set yourself up for success on your next pitch.

This article was originally posted here on Entrepreneur.com.

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Attracting Investors

3 Components Of The Perfect Elevator Pitch

Can you clearly demonstrate value when faced with a time crunch?

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After filming two seasons of Entrepreneur Elevator Pitch, I’ve come to realise that there are three key elements to delivering the perfect pitch.

Our show is unique when it comes to pitching: Potential entrepreneurs have just one minute to pitch their idea, service or product. Those 60 seconds have added pressure because the contestants are being filmed, and they are talking to a camera (instead of people) while riding up to the penthouse suite in an elevator.

Related: 6 Tips for Perfecting Your Elevator Pitch

In real life, with a different set of distractions, it’s essential to know how to deliver a convincing elevator pitch. Whether you are pitching a product, a service or yourself, here are the three essential components in a pitch:

  1. Stimulate interest
  2. Transition that interest
  3. Share a vision.

Can you stimulate interest?

The first step, stimulating interest, is the most important. In fact, an “elevator pitch” is usually determined by the limited amount of time you have, and circumstances may only give you the opportunity to stimulate interest. If you do a good job of stimulating interest, this can yield a second opportunity, where you transition that interest and share a vision with those you are pitching to.

Keep in mind that people generally buy based on emotion, using logical reasons as their impetus for action. So, make a point to connect with them emotionally in order to stimulate their interest. Don’t be afraid to show your feelings; demonstrate high energy and excitement for your idea, business or service. Your passion and belief need to come through in your pitch!

Use the 100/20 Rule to your advantage: Have the energy that you are providing R100 worth of value and only asking for R20 in return. This attitude will generate enough attention, giving you the opportunity to transition the interest that you’ve garnered.

Make the transition

But people don’t buy exclusively on emotion. There needs to be some logic in the decision to make a purchase. Therefore, you must address some sort of pain, fear or guilt in your pitch, that those without your product or service may experience. And if you can illustrate how you (efficiently) solve a big problem, you’ll have more statistical success in your elevator pitch.

Making a genuine connection can help you transition interest. Learn to make yourself equal, then make yourself different.

Simply having connections to the same people or a point of similarity in your backgrounds will help bridge the gap with those you are pitching. Then you can emotionally connect, following that up with the logic portion of your pitch.

Related: (Video) Crafting Your 30 Second Elevator Pitch

Transition the interest you’ve generated with a clear explanation of what differentiates you. Build credibility by discussing your sales, distribution, revenue, awards and/or successes. All of these different ways to “attract” allow you to segue from emotion to the logical reasons to buy.

Of course, it is of the utmost importance to be honest when you are pitching. The truth always comes out, so ensure that you aren’t over-promising with your pitch. Don’t create a void that you are unable to fill.

What’s your vision?

Finally, in order to excel when sharing a vision, you need to have a value proposition that backs the 100/20 Rule. Make the value that you bring to the table as clear as possible. The value you’re asking for in return also needs to be clear. If you don’t display confidence in what you’re asking for, you won’t instill confidence in those you ask.

Tell others exactly what you want, why you want it and what you’re willing to give in return. You should have already proved your valuation when transitioning interest, then reiterated that valuation as you progressed in the pitch.

Take the people you are pitching through the reasons why you can be of value to them, the impact that you can have on their life or organisation and the capabilities you (or your product/service) possess that makes working together beneficial for all involved.

Practice your pitch, then get rich

After following each of these three steps, close with one simple question to gauge whether you are aligned or not: “Can you see any reason you wouldn’t want to move forward?”

If you utilise your pitch to stimulate interest in your product/service/self, transition that interest, then share a vision with those you are pitching to, the answer is almost always a resounding “no.”

And if you get objections or rejections, so what? Address whatever objections there are and if you still can’t get aligned, that’s OK. Take the perspective that the universe has a set number of rejections you need to get to before you find the right partner.

Related: How To Pitch

Be grateful for an opportunity to prove others wrong, and believe that if you keep working on your pitch, product, service or self, everything will come to you in the right way at the perfect time.

This article was originally posted here on Entrepreneur.com.

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Attracting Investors

Alan Knott-Craig Answers Your Questions On Finding a Funder To Managing Your Staff

What you really need to know to land an investor.

Alan Knott-Craig

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Focus on one customer at a time. Make that customer happy. Move to next customer. Aim for ‘1 000 true fans’, then keep them happy.

The rest will come.

1. How do I find an investor?

You have 4 options:

1. Angels

Applicable if you only have an idea, and you need cash to make your idea a reality. Usually between R500 000 and R1 million. You need to milk your network: Parents, friends of parents, colleagues, parents’ friends, friends. If you have no network, you need to build a network or use your savings. There is no math to these investments. You get money because they believe in you, not because they seriously expect a return.

2. Early-stage VC

Applicable if you already have a working product with traction, ie: users and/growth, and you need cash to build out. Usually between R1 million and R2,5 million. There are a number of early-stage VC’s in South Africa, just ask around. Knife Capital are amongst the best. Ideally you want an introduction from a trusted party. Failing that, just email them directly. Give a simple pitch. They’re looking for 15X return on investment.

3. Late-stage VC

Applicable if you have a critical mass of users and meaningful revenue, ie: R10 million a year, and you need cash to grow. The late-stage VC’s are the likes of 4Di, hard to get access without an introduction from a trusted third party, usually one of your existing investors. They are looking for a 5X return on investment.

4. Private equity

Applicable if you have a cash-generative business that requires capital to either exit a shareholder, or to grow profits exponentially. Looking for 25% IRR.

There are also state-sponsored sources of capital for entrepreneurs from previously disadvantaged backgrounds, for example the Technology Innovation Agency. This is ‘soft’ money, requiring no equity or personal surety. If you can get it, take it.

Investors are looking for return on capital. If I invest R100 in an early stage company, I want to get R1 500 (15x) back within a reasonable period of time, ie. no longer than five years.

The key metric is Total Addressable Market (TAM). The size of the market you’re targeting determines the potential size of your business.

Assume you target a market with a TAM of R100 million (profit), and you assume you can get 10% of that market by 2020. That means your business will have R10 million of profits in 2020.

A private company is valued at a maximum of 7x profit, so your company will be worth R70 million in 2020. If you ask me to invest R1 million today, I need 21% of your company in order to realise a 15x return (R15 million) by 2020.

Start with TAM, work from there. Remember, every assumption you make will be questioned. Minimise your assumptions. Maximise the evidence for your assumptions.

Related: Alan Knott-Craig Answers Your Questions On Money And Partners

2. If you are a start-up, what’s the most important thing you can do to grow?

Focus on one customer at a time. Make that customer happy. Move to next customer. Aim for ‘1 000 true fans’, then keep them happy.

The rest will come.

For consumer products, always make it easy for your customers to share. Friction-free sharing is the easiest marketing tool you can have.

Feature-creep is a big risk and can be a big distraction. You need one single value proposition that is enough to get customers. Having fifteen cool features will never compensate for the lack of one killer use case.

Related: Alan Knott-Craig Weigh In On Living Your Entrepreneurial Dream

3. Our staff is growing, more than 20 now. Any tips on management? 

Having four or five staff is not hard. You don’t need to be a good manager or leader. You can muddle along. It’s when your team starts growing past the twenty number that management becomes a skill rather than a word.

There are hundreds are articles written on the art of management, but Jack Welch (former GE CEO) broke it down to this:

  • People want to know who they report to.
  • People want to know how they’re being measured.
  • People what want to know how they’re doing.
  • That’s it.
  • One boss. Clear KPIs. Regular feedback sessions.

Read this

13-rules-for-being-an-entrepreneur-coverAlan Knott-Craig’s latest book, 13 Rules for being an Entrepreneur is now available.

What it’s about

It’s easy to be an entrepreneur. It’s also easy to fail. What’s hard is being a successful entrepreneur.

For an entrepreneur, there is only one important metric of success: Money. But life is not only about making money. It’s about being happy.

This book is a collection of tips and wisdom that will help you make money without forgoing happiness.

Get it now

To download the free eBook or purchase a hard copy, go to www.13rules.co.za.  To browse Alan’s other books, visit bigalmanack.com/books/ 

Ask  Al

Do you have a burning start-up question?

Email: alan@herotel.com

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