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Venture Capital

Need Funding For Your Vision? Give ‘Tasteful Persistence’ A Try

Zuko Tisani’s Legazy is a company that plans six international immersions for mainly start-ups, executives and members of the public. He has managed to grow his business from floundering for funding, to attracting large corporate investors. Here’s how your business can follow suit.

Diana Albertyn

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Legazy was launched with the aim of playing a leading role in the South African digital economy by stimulating the trade on African innovation. Legazy is well on its way to increasing the success rate of entrepreneurs through exposure to market access, partners, media and investors. “Before we were consumers and bystanders of industry 4.0,” says founder Zuko Tisani.

“We work with large corporates and Government, speaking their language by understanding what is important to them and not promoting what we think is important,” Zuko explains.

“Our narrative is tailored to fit the specific corporate we speak to. A lot of companies make the mistake of shooting in the dark and send a generic proposal to as many people as possible.

“We also realised the return on investment for content was huge. We are well documented visually and with the corporates that sponsor our projects it makes it easier to get funding because we can tell a unique story, a big story and an emotive one that goes hand-in-hand with our proposal and separates us from others.”

Related: Attention Black Entrepreneurs: Start-Up Funding From Government Grants & Funds

Zuko offers these top tips for start-up funding success:

How do you get people to care enough about your idea to invest?

1. Be very clear about how assisting you benefits them

Human nature is selfish. Win-win is not enough. Think more 51% to 49% — give more than you get. How is your sponsor going to be the winner of the day by supporting you? Always bring it back to the bottom-line. Whether it’s tax benefits, market exposure or adding value to their supply chain, be careful not to oversell because it can close an opportunity before it even opens. Do your homework to find gaps to fulfil or to enhance existing projects. Once you have emailed a specific request, lay out end-to-end how you will use the money and how it will benefit them.

2. Be persistent not pestering

Sending mails to busy stakeholders without response is a norm — try to find other stakeholders, who are more junior and would also have an interest in your project, to assist. Tasteful persistence is mostly rewarded — be delicate but direct in what you want; keep demonstrating you can add value and deserve the sponsorship.

3. Make the vision big and the ask small

It’s important to gain and build trust so take what you are given and build on that.

Related: Government Funding And Grants For Small Businesses

What steps can your start-up apply when approaching corporates for funding?

1. New is hard to sell and often has tentative buyers in the beginning

However, it’s worse to enter an over-saturated market where differentiation is difficult to see. A lot of entrepreneurs focus on the complete market and say things such as, ‘It’s a $10 billion industry’. Can you skew your value proposition to make a buyer believe it’s unique? And can you capture an upcoming market such as Generation Z (the coming economically empowered generation) in your offering?

2. Paper trails

If you are looking at partnering with a corporate find out where they have put their money before, and what it took for the start-up to gain access to those funds. Also look at the companies similar to yours that are succeeding — where is the money in your sector? This will also inform where you will be wasting your time.

3. It’s all seasonal

Keep a tight watch on when budgets are allocated. A lot of companies will inform you that they’re not in a good position to allocate money. Find a non-financial resource that you can be offered and leverage their partnership to gain financial support with another sponsor.

4. Know the lay of the land

The winner is the one who has the most information. If you are trying to tap into being a supplier for a corporate, know the decision-makers; know the key influencers. Your business is reliant on relationships.

As connection with anyone becomes easier, it’s easier to create solid relationships with decision-makers who can help your business with a signature. But always ensure your proposal offers the greatest value and that you do not only know the decision-maker, but everyone else who is part of supporting the sponsorship.

Read next: A Comprehensive List Of Angel Investors That Fund South African Start-Ups

Diana completed a BA in Journalism in 2010 and has honed her skills as a newspaper reporter, senior communications specialist and most recently worked at a weekly magazine as a writer. She joined the EMTS Group in 2016 as a writer for Entrepreneur magazine and SmartCompany Networks. Passionate about honing her writing skills and delivering exceptional client results, Diana continues to keep a finger on the pulse of industry news and insights.

Venture Capital

What Funders Look For From The Funder’s Perspective

Essentially, Secha brings three key ingredients to the table.

Nadine Todd

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Secha Capital is an FMCG and Agri fund that is focused on the ‘missing middle’, established but small businesses that need additional capital to assist them to reach next-level growth.

“We look for founder/market fit and product/market fit and recurring revenues,” explains Brendan Mullen, co-founder and Managing Director of Secha Capital. “We believe there are businesses that are too big for government grants, but too small for traditional funds, and that’s our focus.”

As a result, Secha addresses capital and management gaps of companies, and chooses its sectors based on research and surveys.

“We’re investment thesis driven,” explains Brendan, who contacted Danie because his team had been researching the fragmented packaged biltong sector in South Africa.

Essentially, Secha brings three key ingredients to the table:

  1. Growth capital: Often used as working capital, but can also be used to purchase machinery.
  2. Human capital support: Secha joins the team for a minimum of nine months and also sources an intern from a management consulting group or international MBA programme. The result is a skills transfer, a new perspective, additional bandwidth and operational support. “It’s often difficult for SMEs to attract the best and the brightest. We look at it like human capital arbitrage; bringing in a high-level person to really assist with projects and operations.”
  3. Channel access. This is the side of FMCG that requires the most persistence, and in many ways Brendan already has excellent contacts that the companies he invests in can leverage off. “It’s important to know buyers and be able to make the right connections and introductions in this business. That’s an invaluable level of support for entrepreneurs.”

For any entrepreneurs considering funding, it’s as important to consider what the investor brings to the table over and above capital — afterall, you are giving equity in your business away, a decision that only makes sense if the ultimate goal is growth.

Related: The DTI Funding Guide You’ve Been Looking For: The What And How

Achieving growth

From Secha Capital’s perspective, the first test that Stoffelberg passed was the taste test. Brendan saw the brand in a retailer and bought it. He then did some research and found a business with a one-page website and limited marketing — which meant there was an opportunity for Secha to add value.

“We were specifically looking for businesses in this sector that owned the entire processing part of the value chain. We wanted to be price makers, not price takers.”

An additional plus point was that Danie and Oom Stoffel had already secured their Halaal, HACCP and export certifications, which proved grit.

“We realised that they are the experts in meat. One of the key things they had in place was an exceptional team. Chris Bothma, who worked on the Blue Train as a head chef, is not only Stoffelberg’s chef, but he’s in charge of production, product innovation, recipes and he manages a team of 25 at head office. He’s also a shareholder in the business. Finding the right subject experts drives growth, and was a big plus point for us. If we find a business that has product/market fit and founder/market fit, we know it’s just a case of adding some other capabilities to achieve real growth.”

What funders look for

For Brendan, there are a few key areas that he considers when making an investment. First, he regularly taps into his networks to stay abreast of what’s hot and new, and what consumers are asking for. This will often lead to an investment thesis.

Next, he looks for a large TAM (total addressable market) with adjacencies. “You ideally want a large TAM in a fragmented area, with products that tend to be grudge purchases because top alternatives are not available, as well as a team or founder who really knows the industry, what’s broken, what can be fixed, and how to get recurring customers from that solution. In addition, we want to see what new value-adds you can you bring to the table.

“Stoffelberg is re-invigorating a dormant market, while another one of our investments, nativechild, is operating in a niche growth vertical within a much larger vertical and can expand from there.

“Look for opportunities in fragmented value chains, where there are no clear brands in that specific section of the market. Find that, and you can find a slice of that value.

“I also believe in founder/sector fit. Stoffelberg wouldn’t be here today if Danie and Oom Stoffel didn’t know the different players in the value chain, couldn’t anticipate pricing and didn’t understand consumer pain points. Domain expertise is huge.

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Venture Capital

Why Not Getting VC Funding Might Be Better For Your Business

Here’s why lifestyle businesses appeal to so many entrepreneurs.

Jim Price

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When I started teaching a new venture creation elective to MBAs 15 years and over 2 000 students ago, I’d tell my student teams they each had to come up with – and develop a compelling plan for – a (theoretically) VC-backable start-up concept. Made sense, right? MBAs wanted to be part of building the Next Big Thing, and venture capital-backed start-ups had driven a massive tech boom over the prior decade – a wave I’d been lucky enough to ride.

But, it didn’t take me long to ease up on that “it’s gotta be VC-backable” requirement. Looking back, I had three reasons for that shift:

1. Start-up lessons tend to apply across the board

First, folks immersed in the action-based learning exercise of mapping out a start-up consistently reported back, after re-entering the workforce, that they were able to apply those learnings and frameworks to almost any entrepreneurial – or intrapreneurial – experience in their careers.

2. Many people find low-tech businesses more appealing

Second, a lot of teams would come up with quite interesting but low-tech startup ideas. As I discussed in my recent article, “Who Would Invest in Your Startup, and Why?,” low-tech businesses rarely represent interesting investments to VCs, primarily because of low valuation multiples (often due to limited growth upside).

3. A vanishingly small proportion of all startups raise VC financing

Finally, I looked at the numbers and realised that most startups – indeed, even most very successful start-ups – do not raise money from venture capitalists. According to statistics from the U.S. Census Bureau, 2017 saw approximately 556,000 business applications from corporations (what they call CBAs) in the U.S. (That’s only about 18 percent of all new business applications, to make sure we’re not counting sole proprietorships, two- to three-person professional services practices, and so on.) Meanwhile, Venture Monitor data from PitchBook and the National Venture Capital Association tells us that, during the same period, U.S. “first financings” from VCs (as opposed to follow-on financings) numbered 2,676, or less than one-half of 1 percent of new corporations started. Now granted, first financings from VCs will tend to occur one to three years after a company first incorporates, but the statistics year-to-year are similar enough that the proportionality doesn’t change in a meaningful way.

But, what I teach and how I teach it completely aside, my real “a-ha” has been a growing appreciation for non-VC-backable start-ups and how they can represent a genuinely appealing path for many entrepreneurs.

Related: Attention Black Entrepreneurs: Start-Up Funding From Government Grants & Funds

Let’s look at the positive side of the ledger for so-called lifestyle businesses:

Ownership and control

Raising equity financing from VCs – or, for that matter, angels – comes with a downside that few talk about: pressure to achieve a liquity event (sale of the company or IPO) within a fairly short time horizon (we’re talking three to six years, typically). Since your company needs to be pretty massive to go public, we’re really talking about pressure to sell the company. If you don’t raise equity financing, you’re in far better control of your own destiny. If you’re in a reasonably protected niche, you’ve got the luxury of time to grow at a more leisurely pace. It’s also up to you as to whether you want a board or directors and/or advisory board, and whom you want to invite to join.

Less dependency and greater chances of success

On the one hand, you’ll need to fund your lifestyle businesses through savings, credit cards, friend-and-family loans, bank lines of credit, small business loans and the like. And while it may sound sexier to load up on lots of VC rocket fuel for your start-up, as we’ve discussed, that funding path assumes you’ll be one of the select few who’s successful in attracting VC investment, and it comes with outside pressure to “go big or go home” and sell the company. So in general, you can think of well-crafted lifestyle businesses as being lower upside, but also lower risk.

Taking the lifestyle business route, you stand a higher chance of getting airborne and achieving some level of success.

Related: Government Funding And Grants For Small Businesses

More options in life

If you own and control the business, you can decide the degree to which you choose to grow it aggressively to maximise cash flow or wealth, versus taking a more casual approach. Perhaps you’ll decide to build the business to a certain plateau and then simply manage it for free cash flow that makes work an option. And, building a lifestyle business in this fashion by no means precludes eventually selling the company if you choose – or, alternatively, handing it down to your kids some day.

You can still leverage technology

Whereas a lot of lifestyle businesses are low-tech in nature, increasingly, we’re finding that even those entrepreneurs are creatively leveraging technology to successfully launch, grow and become more profitable. Social media campaigns, search-optimised websites, customer newsletters and referral networks can all play a crucial role. And behind the scenes, smart lifestyle entrepreneurs are exercising the muscle of low-cost, online tools for everything from brand management to accounting and finance, inventory control, customer relationship management, point-of-sale tools and HR management.

Building a VC-backed startup can be bracing and both personally and financially rewarding. Been there, got the t-shirt. But, nobody’s going to feel sorry for you if you get your lifestyle startup to the point where you’ve created life options such as hiring a general manager and calling in from the lake house a couple of times a week to check in.

This article was originally posted here on Entrepreneur.com.

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Venture Capital

7 Questions A Venture Capitalist Will Ask You Before Investing In Your Business

Are you ready for external financing?

Rob Heath

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It’s no secret that the number one cause of business failure is running out of cash. However, an injection of cash alone does not necessarily mean a business will be successful. Our role as a VC is to identify businesses that have a unique mix of skills and offerings that, when mixed with the right capital partner, are in the best position to succeed.

These businesses are generally run by entrepreneurs that seek to have an impact on some sector of society and have the drive, foresight and emotional intelligence needed to succeed. Finding businesses run by entrepreneurs who exhibit these qualities is a big part of our secret sauce, but equally, it’s important that we can work with, collaborate and align interests with these entrepreneurs, so that success ultimately results in both founders and investors alike realising profits and investment returns.

Related: The Truth About Venture Capital Funding

Understanding what VCs look for

After identifying businesses with potential, we spend a lot of time working with the entrepreneurs we’re considering investing in, asking questions like:

  1. Are we funding a business, an idea, a lifestyle or a big dream?
  2. Who are the clients, how did the business acquire them and why do they use their services?
  3. Does the business have a competitive advantage that’s difficult to copy?
  4. Can the business scale?
  5. And finally, is the founder and entrepreneur ready?
  6. Are they prepared to sell some of their company and work with external partners? Do they listen, seek and take advice?
  7. And when (not if) the company runs out of money, are they the first employee to forego their salary?

If you want to prepare yourself for a capital raise, these are the questions you should be asking yourself in preparation.

Right partners at the right time

Starting a business is hard. Partnering with the right investors with aligned interests is crucial and being comfortable in answering the above questions is just as important.

If answering these questions makes you uneasy in anyway, perhaps you aren’t ready for venture capital financing. Like most things in life, success comes down to people, and partnering with the right people and investors at the right time, is key. Not all entrepreneurs are comfortable working with partners. Understand what you want from a funder before you start looking for investors.

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