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Venture Capital

Tapping into Africa’s massive VC potential

Understanding venture capitalists and what they want from you.

Josh Becker

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Start-ups, by their very nature are the creators of an idea, system, product, technology, or service that didn’t exist before. In Africa these ‘creations’ could be the latest mobile-based app, the arrival on market of a product that wasn’t available before, or the construction of a simple building.

The recent economic boom happening across most of Africa has given rise to a whole lot of startups. New products are available. New buildings are going up daily. New shops, new restaurants, cafes, and boutiques are springing up all around.

These are start-ups. Something new is being created where nothing existed before.

Where VC fits in

Venture capital, by its very nature, is the process of investing in new ideas, products, or people that will hopefully create value where none existed before – and make money in the process. So it’s a bit of a challenge when much of today’s venture capital (VC) activity in Africa is essentially later stage investment.

The investor community in Africa is often unwilling to take the risks of investing in ideas, concepts, or people based on assumptions of the future but rather demand a proven record of performance. Though this is a valid approach to investing, it leaves a gap in the start-up community across much of Africa.

From my experience working across much of Africa, there seems to be a mismatch in what entrepreneurs and visionaries need and what funding sources and the current type of ‘VCs’ in Africa provide.

Here’s some ideas for both entrepreneurs and VCs to help bridge that gap given the current realities, and maybe, hopefully, we will start to see investors get back to what real venture investing should be and take the leap to help create something where nothing existed before:

Establish your track record

This kind of goes against the whole idea of being a start-up, because you’re a new business and have no track record right? Unfortunately in today’s market it’s going to be an uphill battle to raise funding if you don’t have an evident track record of activity. Start somewhere, somehow. Build something, sell something, anything, just get started.

I’ve noticed in my own experience that the plethora of aid groups, impact investors, development finance institutions, VCs and other early stage investors across Africa tend to herd around the operating businesses, no matter the quality.

The uneducated person selling a few thousand dollars worth of product per year will attract way more attention than the team with a plan for a million dollar new business.

The mismatch is unfortunate and skewed in part by the focus on developmental goals, rather than on investing for a return. The good news is that the competition is thin once you get started.

The key here is start somewhere, do something, and show a track record of activity. It’s not a guarantee, but it sure helps.

Generously give transparency and comfort

A lot of start-ups and entrepreneurs I’ve come across in Africa think their business idea is a pure gold mine, and with barely saying the name, much less giving an elevator pitch, they put an NDA in front of you.

Though it’s certainly valid to be cautious, paranoia simply won’t get you very far. Investors are looking for comfort, and information is a great, and often cheap, way of providing comfort. Keep good records of your business activities and financials. Be open about what makes you special and why you deserve to be invested in.

Though many a good business plan are only a page long, the supporting information, facts, contracts, news, insight and data that support the rationales in that business plan are key to giving a potential investor the degree of comfort they need to do a deal. Be up front, answer questions before their asked, and prepare, prepare, prepare. 

Be local

This point is most relevant to VCs but in some cases could apply to entrepreneurs. Be present in the market you are serving. This doesn’t mean having a representative or agent feeding deal flow and suggestions to your global or regional HQ. This means somehow get the decision-making down to the on-the-ground level.

Get in the action and get a feeling for the rhythm of the market. What are the risks, what are the needs, opportunities? Who are the players, what does a successful entrepreneur look like?

The stereotypically jean-clad, coffee drinking, web engineer image of the western entrepreneur may not be as relevant in the African start-up scene. Being able to identify and execute deals quickly is essential and will lead to great returns. Being local is essential!

Most of Africa runs on relationships and cash. Building the former is essential, having the latter helps. Entrepreneurs and VCs who make up the African start-up space have some significant steps to more accurately align the promising entrepreneurs, ideas, and projects, with the capital needed to turn success into reality.

Entrepreneurs and start-ups can move the needle with a few simple steps and approaches to attracting the investor attention they often deserve.

In many ways, Africa is one giant start-up. So much of the face of modern African economy is something new, that wasn’t there before. These are the creations and reality of people driven to find and create value where seemingly none existed before.

Joshua Becker is the son of missionaries who moved to Zambia from the US when he was a baby. Becker is the co-founder of Impele Consulting Group, a consulting and investment advisory firm with local expertise now in nine countries across Africa. Additionally, he is currently the founder and chairman of the board of LibertyWorks, a socially and environmentally positive green energy and hardwood products manufacturer in Liberia, West Africa. Becker holds a BS in Management from ORU, and an MBA from Thunderbird School of Global Management.

Venture Capital

Taking A Business Public Can Unlock Its Full Potential

How can business owners continue to create shared value and drive growth beyond the venture capital funding rounds to attract new investors and customers, and unlock the inherent value in their business?

Graeme Wellsted

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In the context of entrepreneurship, a great deal of emphasis is placed on the start-up phase of a business. But what happens beyond that?

Going public

Listing on a stock exchange is often the best way for a business to realise the next phase of its growth ambitions and create opportunities for shareholder and investor diversification.

Listing a company provides a more effective tool to access capital and enhance liquidity than private equity markets, as there is a much larger investor base to tap. Importantly, this pool will also include institutional investors, such as pension and investment funds, most of which are mandated to only invest in listed entities.

Reasons to list

Raised capital can be used to fund expansion or research and development, or meet other capital requirements for acquisitions. Listing creates exit opportunities for founders, shareholders and early-stage investors, and helps to spread the risk of ownership. Other growth opportunities become accessible as lenders can more accurately determine a company’s market value to determine loan-to-asset ratios.

Valuations for potential mergers or acquisitions are more objective. In this regard, a share issuance can be offered as a suitable exchange of value, rather than using cash to make a purchase or acquisition. Listing a business boosts its credibility and brand equity, which is beneficial from a customer perspective.

It helps to attract and retain the best talent from an employee perspective through the implementation of an employee share incentive scheme.

Related: What should I know about a Public Company before registering one?

Achieve consensus

But before a business lists, it is important to consider the commercial benefits and, consequently, if this is an appropriate next step. In this regard, the leadership team must first review the strategy and agree on where the business is in its lifecycle, and where it is going. For any business to be successful, the shared beliefs and purpose of its leadership team must align and there must be consensus among shareholders that the time is right to list.

Consider the trade-offs

Once this point is reached, consider the implications of taking a private company public. Firstly, business owners must understand that they are effectively giving up control of their company. They must also acknowledge that the transition from a private to public company can be difficult, with increased compliance and transparency.

Listing on a stock exchange also raises the public profile of the company. This includes greater oversight from external stakeholders, with strict reporting and disclosure requirements required by the exchange and regulators. These aspects are mandatory to ensure greater transparency, which translates into greater protection for investors.

Meeting compliance requirements

Arriving at this decision therefore requires a thorough due diligence process. This entails meeting financial reporting and minimum regulatory compliance requirements, which have potential cost and administrative implications that can prove challenging, particularly for smaller businesses.

However, it’s imperative to meet these requirements, as this ensures the business will stand up to market scrutiny and that the entity delivers exactly what it promises to investors. It also ensures the business meets the exchange’s corporate governance requirements, complies with the Companies Act, and operates in line with industry best practices.

Related: Public Private Partnerships Can Work For Entrepreneurs

Demonstrate value

This due diligence process is also vital if a company hopes to adequately demonstrate value to investors in the open market. This will help listing advisors and sponsors, whose job it is to market your company to potential investors, to more accurately determine if there is appetite for your business.

Institutional and retail investors will use this information to interrogate the business’s value proposition to ascertain the potential for growth following a listing, and determine whether the business model will deliver adequate and sustained returns over the medium to long term.

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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

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Venture Capital

If You Have A Great Business Idea, Who Ya Gonna Call? Hint: Not A VC

As customer development expert Bob Dorf advises, “For as long as humanly possible, avoid investors as best you can.”

Andrew Broadbent

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If you have the next billion dollar start-up business idea that is going to change, even revolutionise, an industry, what is your next step? Should you:

Say you’re an experienced entrepreneur who has already thought about all the important metrics for starting a business.

Those metrics might include:

  • Barriers to entry for rivals
  • Initial start-up costs
  • The regulatory environment
  • Questions as to whether/how to patent your idea

Once you’ve got the answers to these questions, how do you start?

Here’s a tip: The first step is not to think about money. Instead, next time you find yourself ruminating over a particular idea, first validate audience demand.

Related: Is Venture Capital Right For You?

Why it’s important to think about your audience as your first step

Raising VC money has been all the rage and hype for the last decade or so.  And, with so many up-and-coming start-ups getting funding each month, people may think venture capital is the obvious path to take.

I’ve often seen people on Quora saying, I have this great business idea; how should I approach potential investors? Whom can I speak with about my idea?

One of the answers to that question, which was upvoted, caught my eye. That commentor wrote, “Talk to your ‘potential’ consumers or your target audience.” Potential consumers, the writer pointed out, will help you:

  • Understand your idea better
  • Find mistakes and areas of improvement
  • Evaluate customer interest and willingness to pay
  • Understand market potential and size
  • Understand the buyer persona better.

All these things will help you at later stages, the writer continued, in reference to fund-raising and shaping your business.

Why you shouldn’t talk to a venture capitalist first

venture-capitalist

VCs can be useful and smart. If you run in entrepreneurial circles – like networks and conferences – you may find it useful to talk to VCs because they’ve probably already entertained 20 different businesses pitches before your idea arrived this morning. Undoubtedly, too, VCs are in a position to offer a diverse perspective.

So, if you get the chance to meet one, talk to him or her without an agenda. Your only goal is to learn something new.

In fact, you can get amazing insights, such as marketing practices going on around you, what’s working and what’s not; operational nightmares, expansion difficulties, hiring disasters.

A great VC will have an interesting story or two on practically every single facet of business, including starting, scaling and managing a startup. Even more important will be the fact that a VC investor can help you get the pulse of market/investor sentiments.

Yet, despite these positive attributes, VCs are not your first call. In fact, I would not recommend at all that you  talk to a VC at the outset about your nascent business idea – and not because the VC will steal your precious concept or  not fund your “idea” since it’s just that – an idea.

When you have a proven concept that is based on actual numbers rather than projections, it may then be time to talk to VC investors. But before that point, first talk to your potential consumers and get some traction.

This article was originally posted here on Entrepreneur.com.

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