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Venture Capital

When Gareth Cliff Met Bill Draper – The First Skype Funder

When it comes to investing in companies that will change the world, Bill Draper, the godfather of venture capitalism, knows a thing or two. Here’s his advice to South African entrepreneurs on using what we have to make a difference.

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He was the first investor in Skype and one of the venture capitalists who detonated the bomb that converted the quiet orchards and hillsides of Palo Alto and Mountain View into Silicon Valley. Today, three counties south of San Francisco, California, have become the locus of the exponential acceleration of tech businesses that have created more billionaires in twenty years than were created in the combined course of human history.

Bill Draper (or more accurately, William Henry Draper III) is an East-coast old-money guy. Born in New York, and a contemporary of George H. W. Bush, he went to Yale. His father was responsible for the implementation of the Marshall Plan under W. Averell Harriman — the man who decided that post-war (West) Germany ought to be a free-market Capitalist state, rather than adopt an agrarian economy.

Bill flew into Berlin on the first plane with a consignment of relief (coal, wool, canned food) along with his father during the Berlin Airlift. I joked with him that I hoped Angela Merkel sent a Christmas card every year.

Resource: Venture Capital Definition

Funder of high-tech business

Through his venture capital company, Draper, Gaither & Anderson, Draper and Johnson, and later Sutter Hill Ventures; Draper has funded several hundred high-technology companies. He has worked in public service as Ronald Reagan’s appointed President of the Export-Import Bank of the United States and at the United Nations Development Programme.

On his return to private business, he began the first US venture capital investment business in India (because, he says, ‘They spoke English!’). His best investments have made him a dollar billionaire and despite turning down an initial investment in Apple Computers, at 88 years old he says he has no regrets. I’m sure he means it.

The success of Silicon Valley is based on the fact that so many start-ups were the first to do something, they had partners who were as different from each other as possible (old/young, scientific/artistic etc) and they were fired up by the engineers and scientists at Stanford University, under the guidance of Fred Terman. This perfect recipe gave birth to Silicon Valley. As students under Terman, William Hewlett met David Packard.

Silicon valley is nearing a ceiling

silicon-valley-layout

In a Q&A session with twenty young South African entrepreneurs in Palo Alto, Draper explained his investment thesis, told a few anecdotal stories and answered questions about company valuations, empathy, women in Silicon Valley and the culture of failure.

He explained that sometimes being on the cutting edge also means you’ll be on the bloody edge — that it can be messy and there will be casualties, but in investing, he looks at the energy, brains, commitment and team-building an entrepreneur brings to the table. He emphasised empathy — explaining that even someone you wouldn’t think had any empathy — Steve Jobs — had empathy for his customers, if not his staff.

Asked about South Africa, he said that like India, it’s a plus that we speak English, and that diversity is a good ingredient for innovative outcomes. He asked if government would be welcoming to foreign investors — something which elicited a mixed response, and stipulated that basic infrastructure needed to be extant and as consistent as possible. Without those things, we could neither found our own Silicon Valley, nor expect his Silicon Valley to take an interest in us.

In terms of deal structure, he implored financial institutions to “loosen up” — explaining that you’ll never make as much money on debt instruments as you will on equity. He believes we’re “getting close to a bubble” with tech company valuations — because companies in Silicon Valley are nearing a ceiling and there are fewer new VC IPOs. “P/E ratios of over 100X there are a bit high.”

Related: How To Get Venture Capital

Changing the game

bill-draper-skype

Draper told the story of how a limo pulled up at his office a few years ago, as the President of Goldman Sachs came to visit Silicon Valley. While the stock market on the East Coast was delivering single-digit returns, Silicon Valley was regularly returning upwards of 20% on investments. That’s when he knew the game had changed. Venture Capital returns are now down by comparison and for entrepreneurs it’s “up, up, up.”

He’s an old man now, with tufts of hair coming out of his ears, but he’s sharp — you can see the sparkle in his eye when he talks about what’s next. The development of tech solutions in health sciences is an area he’s most interested in — his wife suffers from Parkinson’s disease.

“Find solutions to people’s problems and you have a business I’ll invest in.”

Related: Is Your Business Fundable? Venture Capitalist Clive Butkow’s Shares His Priceless Insights

I pulled a SKYPE box out of my bag and asked him to sign it, he wrote: “My best investment — Bill Draper”. He made 1 000X his investment in that Swedish start-up.

As he walked off in his tweed jacket to meet his driver and go home, I wondered how many other things Bill Draper financed that we use every day. Sure he made money, but he’s prouder that he made a difference.

Gareth Cliff launched Cliffcentral.com in May 2014. It’s Africa’s biggest podcaster and has been profitable since day one. The business specialises in mainstream and niche audio and video content, producing more than 62 hours of original content every week. Before Cliffcentral.com, he hosted the biggest morning FM radio show in South Africa, with audiences of 2 to 3 million people every day.

Venture Capital

Angels & Demons: What To Know When Negotiating Equity Funding For Your Start-up

It is important that you don’t treat equity funding lightly. A few key points are discussed in this article for you to consider.

Daniel Van Zuydam

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Getting your start-up off the ground and scaling it up usually requires an injection of capital to ensure that you can get past the lean years. Many a start-up has been left to starve in the proverbial desert seeking the promised land of an equity funding raise and many start-ups have drunk from the poisoned chalice of a poorly aligned investor relationship. It is important that you don’t treat equity funding lightly. A few key points are discussed in this article for you to consider.

Hold onto your equity, it is precious

Equity may seem like an attractive way to raise funding for your business, it is easy to “create” and it doesn’t really require that much effort to exchange it for funds, but remember that with each share you give away, you are giving a little more control and value in your company away.

At first, this may not seem significant, but the more funding rounds you go through, the more you are going to wish that you had held on to more equity, especially if your company’s growth is in line with your aspirations! Ideally, an equity raise should be one of your last options for raising funds until you have at least developed your ‘minimum viable product’. An equity raise should only be used if you are really in need of funds to keep going or to jump your production to the next level; even then, only give away as much equity as you need to.

Related: Want Funding? Finfindeasy.co.za Founder Says You Must Learn To Speak The Language

Know what stage your business is at

This is really a simple principle. If you are pre-revenue and trying to create a minimum viable product, if you have to raise funding, you should seek out “Angel” or “friendly” investors who are willing to give you very favourable terms generally at a high valuation (meaning you give away less equity and control), these are often friends or family members. If you are post-revenue, you may wish to seek out venture capital funds or institutional investors to invest in your company.

He’s just not that into you

Make sure that your investor is serious about investing into your company. For institutional investors, the way that you will know when they are serious is when you receive a letter of intent or “term sheet” from them. It’s the venture capital equivalent of asking you on a date.  They are trying to say that they’d like to see how things go, but they are not committing to anything serious just yet. If after a few months of discussion, you do not get a letter of intent, move on, there are more fish in the sea.

Related: New Fund For Small Businesses To Be Developed

Know who you are doing business with

It is better to struggle through months or even years of bootstrapping than it is to have an investor relationship with someone who is completely incompatible with your business or who is going to add no value other than money.

An investor relationship can make or break your company. Don’t simply hand over your equity to the first bitcoin millionaire with a Colgate smile who approaches you.

Look for investors who want to invest in your industry and who have good connections in that field, this can be more valuable than the money that the investor is putting into your company.

Get good legal and commercial advice

It’s important to remember that an institutional investor is just as much a business as you are. They are always going to be biased towards getting the best return on their investment no matter how altruistic they may come across. This means that the commercial and legal terms, if left to them alone, will be weighted in their favour.

You may be tempted to avoid the expensive lawyers and commercial advisors, but too many startups make the mistake of being penny wise and pound foolish here. Unfortunately, commercial investment terms can be very complex and it is always advisable to have someone on the commercial and legal front sitting squarely in your corner.

Related: The Investor Sourcing Guide

In short, equity is an effective arrow in the start-up’s quiver to use when raising funding, however, it is not the only one available. If you do decide to let it loose, don’t do so aimlessly, pick a target and aim it in that direction. The more strategic you are in negotiating your equity fundraising, the more likely you are to get favourable valuations and investment terms.

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Venture Capital

Why You Need A Million-Dollar Pitch Before Your Start a Business

You’re not ready to launch your business until you can explain in 20 seconds or less how it helps someone.

Grant Clark

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I would argue that you should not try to start a business until you can clearly articulate how you help people in a pitch. Pitching is vital to your success so it makes sense that you need to master it before you can launch a business. Why? It forces you to focus on what you can do right now and what problem you solve in the marketplace. It’s the value of your business in just a few words.

You will need to pitch your product, idea, or service to:

  • Turn strangers into customers
  • Attract investment partners
  • Hire new employees

Before anyone is going to do business with you, you have to get attention. A million dollar pitch is a short commercial that will attract attention and make the benefits of your company tangible to a customer. It should be 20 seconds or less and help the person take an immediate interest in what you do. It’s a simple statement with a specific goal.

How much time have you invested perfecting your pitch?

If you’re saying to yourself right now that what you do is “too complicated” to put in a few words, you probably lack clarity about what you’re doing. It might also be a sign you’re only thinking about making money instead of how you can add value to others.

A lot of people cannot articulate their value in a few words.

There are so many distractions out there, so you need a well-crafted pitch to cut through all the noise. People call me all the time on my shows with long-winded explanations about their business. When you’re pitching, no one wants to hear about your company history. I don’t say that to be disrespectful, but because it’s just the truth. You have to give someone a reason to want to ask more about you – that’s what a good pitch does. The other party knows the immediate benefit and whether it’s big enough for them to want to learn more.

Related: 3 Actionable Insights To Make Your Investment Pitch Perfect

What can you do right now?

Have you ever thought “I could do that too” when you hear about someone doing a particular activity to become successful? I always laugh when people tell me stories like this. Let’s agree that you can learn anything. Here’s my question: is your idea something that you could do if you learned it or is it something that you can do right now?

Before you can be successful, you have to base what you do in your reality. Ask yourself what you can do right now, not what you could do in the future. Unless you’re planning a career change, assess your income-producing skills that you currently have and centre your pitch around that.

What problem does this solve?

After you figure out what your skill is, you have to ask what problem it solves. If a lot of people are having the same problem then it could be a great idea for a business. Who is your audience? Who do you already know in the marketplace that already needs your product, that wants your product? Most likely it’s not going to be people around your street corner. Look for a market that already exists and see how what you do can help that market.

Putting it together

Now that you have a business idea based on these two requirements, create a 20 second or less commercial out of it. The shorter the better. Most people just string something together without much thought. It’s your job to create a powerful statement that makes it impossible for someone not to want to learn more about you.

Here’s one of my pitches “My company increases sales by 15 to 20 percent and we’ll do that in less than 14 days.” Look how it’s based on something that I can do right now and that solves a problem for a large group of people. Do you think that my prospective customer would be interested in what I have to say after they hear this pitch? I’ve used it many times so I can answer for you – yes!

Is your pitch effective?

What kind of response are you getting from your pitch? Are you getting people to take action or ask more questions? Aside from creating a compelling pitch, it has to be practiced to be effective. Why do you think I wrote the Closer’s Survival Guide? It’s a training manual for closing – it’s essentially a bunch of pitches with the goal of closing the customer. I wrote them out and train them all the time. That’s what a lot of people miss. They could have killer pitch but are horrible at delivering them. You will only sell someone on your pitch if you train, drill and practice it until it’s second nature.

Related: 6 Great Tips For A Successful Shark Tank Pitch

3 Tips for pitches

Clarify Your Goal: What is the purpose of your pitch? To have a successful pitch, you need to clarify your goal. Do you want the other party to sign a contract, agree to a meeting or sign up for your email list? If your goal is clear, then it’s much easier to create a pitch that serves that purpose.

Ask for Attention: You’ll have to get the full attention of the person before they will listen to your pitch. Never start your pitch before you ask them if you can share what you do. The best way to do this is to simply ask them. If you’re in an elevator ask, “can you give me your attention for the next 20 floors?”

Make It Memorable: A pitch is not an explanation of how your business operates or your company history – it’s a well-constructed value statement and it has to be BIG. You need to wow the customer and you’re not going to do that if your pitch is dull. It has to hit hard using a big claim. If you use my pitch as an example, it has a quantifiable result for the customer. That’s a good strategy to use. Show exactly how you can help that person. I always say show me don’t tell me.

Building a business one person at a time

Remember that strangers have everything that you want. Using a well-crafted pitch is the best way to introduce yourself to someone because you created it to get attention. It’s your job to make them interested in you. You must network and make your contacts grow so you can grow your business.

Promote and market yourself using your pitch 24/7. The better it is, the more attention you’ll get. Don’t be like everyone else and “start a business” before you have created a million-dollar pitch. I can tell you from experience that if you follow these simple steps, you’ll have a better business and will be able to sell more people on your ideas. Let me know how this strategy works for your business.

This article was originally posted here on Entrepreneur.com.

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Financing That Backs Entrepreneurs

The SME landscape is fast and flexible. It requires financing that understands how entrepreneurial businesses operate. Through its unique processes and assessments, Spartan’s finance solutions are geared to do just that.

Spartan

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It takes an entrepreneur to know entrepreneurs, which is why Kumaran Padayachee and his team at Spartan are dedicated to financially backing an often-underserviced sector: SMEs.

“We’re fast, we’re flexible, and we’re understanding,” says Kumaran. “Every single person who works here is SME-centric. We hire for fit, looking for empathy and alignment in every position. All of our processes and assessments are done with empathy and understanding towards SMEs.”

Becoming funding ready

Thanks to these systems, processes and the team’s unique way of assessing SMEs, Spartan typically grants finance within seven days, although the fastest approval has been six hours, with the longest 15 days.

Related: Alternative Finance – Filling The Gap

“How quickly we can approve finance is determined by how prepared the business owner is,” explains Kumaran.

“Do they have all their basic documentation ready? These include financials, management accounts, debtors age analysis and creditors age analysis. From a working capital context, this information makes it easy to assess the health of the business. Every business owner and financial director should be on top of these figures.”

Finding a funding fit

Not every business needs funding. Some can grow organically and draw on their own cash reserves. Others choose an equity route.

Spartan is a debt funder. However, even as a debt funder, the team’s aim is to back entrepreneurs and help them grow their businesses. They evaluate what the finance will be used for, and if the return is greater than the repayments.

“There are numerous ways that finance can be applied incorrectly by SMEs,” says Kumaran. “One of the first flags we look for is debtors age. If the industry norm is payment in 30 days, but a business is typically paid by its clients in 60 or 120 days, then we know there is something wrong with their internal processes. Either the company is too shy to be assertive with clients, or it lacks the capacity or capability to invoice clients and collect cash efficiently. Either way, the result is a shortage of cash.

“Business owners in this situation apply for a loan in order to be able to pay the bills, when they should be reviewing their own business, pulling one or two levers, and improving their cash flows.

“A customer project or contract is an example of an expansionary and positive need for finance. These cases are ideally suited to bridging finance. The problem is that there’s a lead time gap. You need to start the project, spend cash to hire people or purchase equipment, build internal capacity, deliver on the project and then the customer only pays you. Working capital and bridging finance allows the entrepreneur to do just that, and the company grows as a result.”

Bridging finance, in particular, is high risk and requires a large amount of flexibility, which is why more traditional funding institutions shy away from it. Spartan, on the other hand, offers revolving bridging loans to customers the team has worked with. “We understand this space, and our aim is to support the entrepreneurs within it,” Kumaran concludes.

Related: Business & Leadership Lessons from Kumaran of Spartan

Alternative finance solutions

Spartan is a 36-year-old Non-Bank Finance Company — that specialises in financing Small and Mid-sized businesses by providing:

  • Growth Finance [structured finance for expansion]
  • Specialised Asset Finance [equipment/machinery/technology/software/office fit-outs/energy/etc.]
  • Working Capital Finance [bridging finance & medium term loans].

Bridging Finance

Bridging Finance is available for one to three month terms and is ideal for contract or project-based businesses. It is a solution that assists businesses with solving cash flow issues due to growth related challenges in their business and is either for a once-off need or for revolving business use.

Spartan is an Authorised Financial Services Provider 47631 and Registered Credit Provider NCRCP8669.

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