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Attracting Investors

Family Business: The Pros and Cons of Getting Funding From Loved Ones

Investors come in many shapes and sizes, as well as with various needs and intentions. Odds are you can find someone to help you with your financing needs if you cast your net wide enough.





In the book, Write Your Business Plan, the staff of Entrepreneur Media offer an in-depth understanding of what’s essential to any business plan, what’s appropriate for your venture and what it takes to ensure success. In this edited excerpt, the authors discuss two close-to-home sources of business funding.

When you’re looking for money for your business, it may seem that investors are scarce. But the real problem may be that you’re not looking in enough places for potential financiers. You may find investors as close as your immediate family and as far away as professional venture capitalists on the other side of the world.

Related: IDC Funding

Your Own Resources

Your own resources, savings, investments and other valuable assets are the beginning of your financing efforts. One reason to write a business plan is to provide reassurance that you’re making a sensible investment. Remember, you’ll be investing serious nonfinancial assets in your business: your time, effort, hopes and reputation.

As for your own financial assets, make sure the money isn’t already earmarked for tuition or part of your necessary family spending, such as your mortgage, rent and the like. If you’re in debt, it’s also advisable to get out from under it before starting a business, though you can start writing your business plan while getting your financial affairs in order.

Even though you’ll hopefully be investing assets from investors, you should be prepared to invest some of your own money in your venture. Rule of thumb says if you want other people to invest in you, then you also have to invest in yourself. Why should other people take a gamble on your business if you won’t?

The most likely source of financing is the group of people closest to you. Spouses, parents, grandparents, aunts, uncles and in-laws, as well as friends and colleagues, have reasons to help you that arm’s-length financiers lack. For that reason, they may back you when no one else will.

One seldom-noticed aspect of asking family and friends to invest in your venture is that other investors (especially bankers and venture capitalists) often ask if you have approached friends and family to raise initial capital.

If you say you haven’t, they’ll ask why not. If your deal is so appealing, why wouldn’t you let your friends in on the ground floor? If you say yes but they couldn’t come through for you, at least the banker or VC will know you tried.

Money from family and friends has backed many successful business ventures.For example, Pizza Hut Inc. co-founders Frank and Dan Carney borrowed $600 from an insurance fund left by their late father to start the pizza chain. Friends and family may not be able to raise millions of dollars, but they can provide long-term financing for highly speculative endeavors that more mainstream financiers wouldn’t touch.

If you’re financing your venture with family money, you may think all you need is a smile and a polite request to raise what you need. In the short term, that may work and produce the funds you need to start out. But over the long term, even family-financed enterprises will benefit from having a business plan.

Such a plan shows family members who are putting up the money what they can expect for their contribution. And it helps keep the entrepreneur—you—mindful of responsibilities to the family members who backed you and on track to fulfill your obligations.

Pros and Cons of Family Funding

On the positive side, family and friends will let you know if your idea appeals to them. Typically they’ll also give you the time and a less stressful environment in which to present your plan. Family members may be more readily available to lend a helping hand when you need one and may be there to take over the business down the road.

The flip side is that you’re closer to your family and friends. Losing the money of someone close to you can create a lot of tension between you and your family or friends.

Family members and friends may also want to get more involved and try to oversee aspects of the business or push you to make changes that other investors would not. They may even expect to be on your management team, which wouldn’t be the case with a bank.

To make investor agreements work with friends and family, you need to spell out everything clearly and make sure you can separate your business from your personal relationships. This isn’t necessarily as easy as it sounds. You need to go into any such deals playing some defense and making it clear that people may lose their investments.

Provide plenty of warning, and if they insist on being part of your business, make sure there are boundaries set out in advance that everyone can agree upon.

Related: DTI Funding

This article was originally posted here on

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Attracting Investors

Want Funding? Founder Says You Must Learn To Speak The Language

Darlene Menzies, founder of 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




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 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 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




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.




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


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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