The tech entrepreneur wakes up. It’s still dark outside. Cup of coffee and Marmite toast down the hatch, and it’s off to the office. An hour or two responding to email, a quick meeting with the business partner and software dev manager, then off to pitch to the suits from the VC company they’ve managed to get interested in funding them.
It goes well, but the VC guys are non-committal. Quick lunch, back to the office. By five its exhaustion time, but another hour or two trying work out how to get those invoices paid to be able to meet payroll in less than a week. Then it’s time to quickly check the tech news sites before heading home by way of the local Nando’s.
“Nooooooooo!”, a scream rings out. “Those guys got R25 million in funding? But everyone knows they have nothing – their tech is vapourware and PowerPoint. It’ll never work! How did THEY get funding? Anyone that knows about coding knows that our tech is awesome… at the last jQuery hackathon we were voted ‘Best Tech’!”
Missing the boat
This scenario is played out month in, month out in South Africa. We have some of the best programmers and technology developers in the world (we do, seriously!), and yet for far too many start-ups this story rings far too familiar.
So what’s not working? Why are these awesome technology entrepreneurs not finding their funding match made in heaven?
Mostly, it’s the communication gap.
Tech entrepreneurs in SA are often not terribly good at articulating their technology vision – and how it will be successfully commercialised. They may build great tech, but can they show it off in a way that makes investors (who are usually not technical at all) get it?
Is there a minimum viable product they can show? Is the revolutionary new product they’re showing potential investors complete and operating (even if it’s not yet very polished), or are they showing them a number of boxes containing rocket-science parts?
Selling to investors
An investor wants to see what you plan to sell, not what it will be made out of.
How does one articulate the value it will give the users? Is it palatable to the market in terms of usability, the technology adoption cycle, the cost? One day the startup will be selling a product, and the technology must be packaged as such for the potential investors to see.
Often we try to pitch an idea, when the investor wants to see a product.
Anything that is ahead of the market is hard to articulate. If the investors are not familiar with your line of thinking (and you can safely assume they’re not), then you need to take them on a journey to show them how it will be taken to market.
How? Well… the typical tech entrepreneur should not be too proud to ask for help. To articulate market positioning, to clearly and concisely express the customer demand the product would satisfy is a skill, requiring experience and training. There are people who do this for a living. There are also piles of information available from startup blogs and forums: there is a whole community to get advice from.
Matching VCs to start-ups
Arguably VCs and funders inSouth Africacould also meet tech developers halfway. Many in the funding community in our country follow a similar practice to Europe and theUS, where they expect the entrepreneur to come in, blaze away at them and leave them convinced. This is not terribly realistic in SA where the gap between technologists and marketers is still very wide.
Investors in SA do need to do an awful lot more work to pull out the gems. More often than not, they’ll need to see a good idea, see a good mind, a committed entrepreneur and the inklings of a great product, and then help the entrepreneur articulate this.
In the US a funder can be just that – a funder. In SA, they may need to also act as a midwife to help in the successful delivery of a new product.
Of course, entrepreneurs should not rely on investors to help them do their pitch. It is their idea, after all.
We also need to share more when there are fundraising successes, or when a funded company goes live. We need to bang our drums, make some noise. This needs to come from the funders and the entrepreneurs. We need more success stories, so that people can see that it’s worth taking the risks as a tech investor. Every successful entrepreneur builds another round of angel investors.
The start-up community needs to work more closely together – to share successes, to support each other. We must worry less about someone stealing that great idea (ideas are easy, it’s the execution that’s hard), and worry more about helping each other succeed.
Getting funding for your start-up is not a zero-sum game… for every winner, there can be another winner.
The Investor Sourcing Guide
How to attract and obtain investors to your established, high-growth business.
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?
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.
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:
- Where investors’ get their funding
- What their investment track record looks like
- What their investment directives are
- Their appetite for risk
- 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.
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.
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