- Player: Matsi Modise
- Organisation: SiMODiSA
- Position: Managing Director
- Visit: simodisa.org
Most early-stage entrepreneurs face two hurdles: The first is finding a great idea. The second is finding funding. The nature of these two hurdles differ greatly. The search for an idea is a journey of discovery. While trying to find an idea can undoubtedly be frustrating at times, it can also be tremendously rewarding.
It’s a search filled with endless possibilities — the entrepreneurial equivalent of a vision quest. And those who are successful in this quest often discover something much greater than a simple ‘business idea’: They discover a purpose for their lives.
Then there is the search for funding. And sadly, this is a far more prosaic process. If a search for an idea is a vision quest, the search for funding is a cage-fighting match or an ultra-marathon — even if you end up being victorious, you’re guaranteed to be left bruised, bloodied and severely parched.
Related: Work Smarter Says Matsi Modise
Regardless of the funding avenue you opt for, you’re in for a long and strenuous journey. There will be lots of paperwork, lots of pitches — and lots of rejections.
So what is the secret to success? Well, you’ll need the same things any cage fighter needs: Tenacity, endurance and the ability to take a punch. A thick skin won’t hurt.
SiMODiSA is a South African organisation that aims to act as the ‘cutman’ in the corner of the young entrepreneur — a platform that offers ‘hand-ups to start-ups’ and intends to break down the barriers standing in the way of SMEs.
One of its goals is to help start-ups access funding. Entrepreneur spoke to the organisation’s Matsi Modise about the process of securing funding.
How realistic is a search for funding? Is there funding out there?
It really depends on the level that your business is at. If you’re going to try and attain seed funding, you’re probably going to struggle. Investors want to see that you have a proven business model before they invest, so you need to bootstrap for a while and prove that your business is working.
Once your business has been up and running for a while it becomes far easier to get funding. If you have a great business, you will find people willing to invest.
So how does one go about finding funding? Where should the search start?
The search should start with a careful appraisal of your operation. You need to establish whether you are ‘funding ready’.
And what does it mean to be funding ready?
Once again, it depends on the stage that your business is at. If you’ve been operating for a while and need money to scale — which is when you’re most likely to get hold of funding — you should be able to prove that you’ve been keeping records and have a good handle on the financial state of your business. You need to know your numbers.
You also need a good understanding of your industry. You need to be able to talk intelligently about the prospects for your business. It’s important to show that your business truly can scale. Moreover, investors don’t want to hear over-optimistic projections — you need to be able to back up your claims.
Are there any resources that can help entrepreneurs find out if they’re funding ready?
A good place to start is the local website Fin Find. It’s a one-stop shop for finance advice where you can learn about access to finance and find out if your business is ready for finance. The site has a bunch of great finance readiness tools, including a finance readiness quiz that will give you a good idea of the state of your business.
Once you feel as if you’re ready, where should you start looking for funding?
At the moment, there is no central source in South Africa that allows entrepreneurs to understand the funding landscape at a glance. A great international example is Digital.NYC. The site has its finger on the pulse of the New York start-up scene, and it has a very useful list of investors that entrepreneurs can approach.
South Africa doesn’t have anything like this, but SiMODiSA is in the process of trying to create this kind of resource for local entrepreneurs.
Related: New Ways SMEs Can Find Funding
How many investors and venture capitalists are there in South Africa?
When it comes to private funding, most of it tends to be of the equity-partner variety. This is a good way to get hold of funding, but it can also be risky. You need to establish what role an equity partner will play in the business. Will he or she be a silent partner, or will they have an active role in the business? You need to ensure that the intentions and expectations of all partners are aligned.
As a local industry, VC funding is incredibly small. Officially, we have about 30 local VC companies, but in reality, only a handful are very active. Venture capital is hard to come by in South Africa. That said, it does exist. Operations such as AngelHub Ventures, Edge Growth and 4Di Capital are good places to start.
What about governmental sources of funding such as the IDC?
This is certainly an avenue worth exploring, though there tends to be a social component involved when it comes to governmental funding. Social entrepreneurs — or founders who can prove a significant social impact — are the ones who tend to have the most success here.
Some entrepreneurs also find the application process daunting and are put off by all the paperwork involved, but it is worth the effort if you manage to navigate the bureaucracy successfully. My advice would be to visit the IDC’s website. There you’ll find detailed information on what the IDC expects in terms of a business plan, etc.
As an organisation, SiMODiSA hopes to make governmental funding easier to access in the future. We’re also trying to facilitate ‘partnerships’ between government and private investors. The ideal would be to facilitate a situation where government matches the funds offered by a private investor.
Related: IDC Funding
What other ways are there to get hold of funding?
Well, one great way of getting hold of funding — but which is often overlooked — is entering entrepreneurship competitions. It’s not only a great way of securing funding, but also of getting your business out there. Winning an entrepreneurship competition often brings with it a prize and excellent exposure.
For example, StartupSA — a competition put on by SiMODiSA — was won by a local on-demand cleaning service called SweepSouth in 2014. The entrepreneurs, Aisha Pandor and Alen Ribic, got a chance to visit Silicon Valley for two months. The exposure they received really helped them, and they secured funding from investors such as Vinny Lingham and Polo Leteka in 2015. Early in 2016, SweepSouth secured R10 million in funding from Edge Growth. So it really is a great success story.
What advice can you offer when pitching to investors?
Know who you’re pitching to. You need to know what your potential investors are looking for specifically. What sort of ROI are they looking for? What kind of horizon do they have in mind? Regardless of whether you’re approaching a VC firm or an organisation such as the IDC, you need to do your research and know what attracts them. If you approach the wrong kind of investor, you’re just wasting your time.
How should one prepare for a pitch?
As mentioned earlier, you need to know your business well and make sure that you have a good handle on the business. You need to prepare your pitch. Your idea and your business is important, but your pitch is also important.
As the saying goes, investors bet on the jockey as much as the horse. They need to believe in you. They want to see that you are ready to be funded. If you want to be offered the opportunity, you need to prove that you can handle the responsibility.
- finfindeasy.co.za — Fin Find offers great tools for establishing the financial health of your business.
- idc.co.za — The IDC’s website provides good insight into what’s needed when applying for funding from a government entity.
- simodisa.org — SiMODiSA is an organisation that aims to help SMEs overcome the hurdles that stand in their way.
3 Components Of The Perfect Elevator Pitch
Can you clearly demonstrate value when faced with a time crunch?
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.
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:
- Stimulate interest
- Transition that interest
- 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.
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.
Alan Knott-Craig Answers Your Questions On Finding a Funder To Managing Your Staff
What you really need to know to land an investor.
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:
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.
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.
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.
Alan 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.
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Do you have a burning start-up question?
XPRS Capital Africa Bridges Funding Gap Faced By South African SMEs
XPRS Capital Africa answers local SMEs call for funding.
Small and medium enterprises (SMEs) are a vital component of the South African economy. However, there is a substantial portion of the country’s estimated 650,000 SMEs that have no access to funding to assist in their continued growth
In response to an increase in demand for reliable and easily accessible capital for businesses like these, XPRS Capital Africa opened its doors in South Africa. The specialist business funding provider is geared towards rapidly vetting and approving short-term business funding ranging from R50,000 to R500,000. In addition, XPRS Capital Africa specialises in extending funding to SMEs that may not qualify for funding from traditional lenders.
Simon Leps, CEO of XPRS Capital Africa explains that XPRS Capital has its roots in the US, having been founded in 2013. “The company is a renowned and established alternative online business-to-business lender. Together with a team of data scientists and using thousands of data points, XPRS Capital has developed a proprietary credit vetting algorithm and packaged product set.”
“The technology and approval processes developed by XPRS Capital has a massively successful track record overseas and the experience that our company has gained over the years will help many more SMEs in South Africa to reach their potential,” says Leps.
“The XPRS Capital platform has processed over $1b worth of loans and has a proven track record of funding thousands of businesses across hundreds of industries,” he continues.
Leps adds that the company’s sophisticated algorithm allows XPRS Capital Africa to provide funding to many South African SMEs that are usually denied loans on the basis that their owners have less than ideal credit records. “Traditional lenders are often reluctant to lend capital to SME owners whose credit histories place them in higher risk categories. This has created a massive challenge for many promising SMEs. At XPRS Capital Africa, we focus on the health of the SME, and use state-of-the-art technology to provide businesses the cash flow they need to grow and flourish.”
Using the unique algorithm that we have optimised for the South African market, we are able to accurately assess any SME that has been in business for over a year, to rapidly provide a 3 to 12-month funding solution, notes Leps. “The online application takes less than 10 minutes, allowing SME owners to spend less time filling in forms for funding, and more time on their business.”
XPRS Capital Africa provides funding directly, working closely with SMEs to offer the fastest approvals, best possible repayment terms and most accurate risk profiles for any business.
“Cash flow is the lifeblood of every single business. Our mission is to provide this quickly, affordably and reliably,” Leps adds.
He notes that, given the high number of businesses that have trouble accessing financing, SME owners should also know how to maintain their own positive credit records. Thereby they can ensure that their businesses have access to as many options as possible.
“Ensure that all areas of your company are looked after to the same degree as most funding providers want to see that all aspects of a business are well managed. Up to date, audited financial statements and management accounts, well managed bank accounts, and good budgeting and forecasting show that the owners are attentive. Owners also need to know their businesses inside and out and be able to answer questions about their cash flow and deal pipeline.”
Related: The Investor Sourcing Guide
In addition to this, Leps says that the customer’s experience when dealing with the business could also have a measurable impact. “Any touchpoints that are available to your customers will be looked at by potential funders, so all customer facing assets should look professional and be kept up to date. This goes for websites, online portals and social media accounts.”
“The ability to access additional funds when your company needs it is the key to long-term survival. That’s why it is paramount to maintain the best possible credit record. However, it is also important to remember that, whatever the financial state of your business, business owners are never completely out of options,” Leps concludes.
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