By Ben White on November 21, 2011
At VC4Africa we want to see entrepreneurs realize their potential. As a network we seek to mobilize knowledge and resources needed to see the most promising ventures accelerate. We now have members from 159 countries dedicated to this mission.
At VC4Africa we also host a ‘booster program’ that works to connect the community’s entrepreneurs with the VC4Africa Qualified Investor Network. VC4Africa spoke with Saskia Reus-Makkink, Head of Investor Relations, to find out more about this process and the steps an entrepreneur has to take before they are ready for funding.
What are the qualities a business should have if they are going to be considered ‘investible’?
“The idea must of course be sound and there must be a market for it. Criteria for investors to invest in a venture differs as their risk appetite differs as well. In general, a good solid business plan is just a start. Further more, you must work on the proof of your plan and yourself as an applicant for funding. The best proof of your concept is that it works in practice and that you were able to get a pilot started. Once these milestones have been achieved it makes sense to seek out the capital you need to expand your activities.”
Some entrepreneurs might think they e-mail one investor or post their venture online and receive funding. This isn’t really how the fundraising process works, is it?
“No, you really need to convince the investor that your business is a good investment opportunity. Be sure you shared all relevant facts in your venture profile and put together a good pitch. The investor needs to get a good impression about you and your business opportunity. If he/she is interested, they will follow your activities or contact you on VC4Africa directly to learn more about your venture and you as entrepreneur. They will ask for the full business plan (this should include detailed financial projections). If your documents are in order it is reasonable to expect a few Skype calls. These will be used to discuss your plans and your vision in more detail. If the investor is serious they probably will visit your office or send a representative to meet with you in person. Hopefully they are pleased with the information and you feel comfortable with what the investor can bring to the table.
Note: there are also malicious people out there asking for your business plan, or offer ‘easy’ money to help you. There is never ever a free lunch and if it sounds too good to be true, be certain that it is! You can always contact VC4Africa to check if the one who contacted you is one of our qualified investors.”
How important is the quality of the profile and what can the entrepreneur do to make this as attractive to investors as possible?
“The crunched plan is a high level summary of the business plan, so make good use of the space provided and be sure it reflects the essentials of your business. Get all the key information in and make it specific and fact based. For example, I see profiles with only the qualities of the team but don’t include actual names. Include the names of your team members so an investor can check their track record. For revenue, be specific about future sales, state if you already have revenue and/or letters of intent from customers. You can also include updates and more detailed information about relevant aspects of your business on your activity stream.”
Many entrepreneurs would like to see more feedback from possible partners/investors. What are some of the strategies they can employ?
“First, the investor needs to notice your venture. To increase visibility, make sure you mobilize your network and collect as many votes of support for your venture as possible. In this way you build social traction, show the popularity for your venture, and secure a higher ranking. This improves the chance an investor will see your venture. Another way of increasing visibility is to share knowledge and expertise in the Questions & Answers section of the website. Also feel free to engage in discussions with other entrepreneurs on their venture profile. All these activities help you to create awareness for your work.
Second, keep your own venture profile up to date. If an investor checks your profile, they will also check if the entrepreneur is still active. If there is no activity or updates showing some of the more recent progress, why would the investor spend time on it? Show what you are working on and what is happening. This gives a good impression on your progress and dedication to your project. It will generate more feedback from possible investors and this momentum is what you need to get even more people involved.”
What kind of updates are investors looking for?
“For updates, write for example about major milestones achieved. Any customers that signed a letter of intent? Chamber of Commerce registration finalized? Also share the challenges and how you found a way to overcome them. This makes your story more personal than only sharing good results. All entrepreneurs go through ups and downs and it shows what you have done to mitigate risk for your business. You can check other venture profiles for inspiration and ask high potentials questions about their plans. Look for partnerships yourself. Are there any ventures you might join forces with, similar ideas and complimentary markets?”
Trust is a big issue for an investor. What can the entrepreneur do to create more trust?
“An investor wants to be sure you exist, that you are trustworthy and that you have the necessary qualities needed to set up the business. Ask for references on your venture page and keep an up to date LinkedIN profile. Preferably you get references from people who have already been successful and can vouch for your ideas. Show dedication and commitment to your business by posting regular updates on the progress of your activities. Be sure you have the best team possible and have access to all of the knowledge required i.e. links to a senior business expert as an advisor to the company.
A venture already generating revenue is a big indicator of future success. Can you talk about this point and what entrepreneurs should do to demonstrate their business is commercially viable?
“If you can demonstrate your business is already successful on a small scale, it makes it easier to see the potential for scaling the business. If you are not able to generate some form of value today the fund raising process will be a real challenge. I understand many ventures start with an idea, but then please make sure you get a few “Letters of Intent” from customers who are willing to do business with you in the future. You have to find ways to make the value concrete and tangible. If that is not possible, then be sure you have the right market research available. You have to work extra hard to explain your assumptions. Note that investors will check your proof, so don’t take the shortcut by faking a letter of intent from a customer. This will work against you and get your name on the blacklist.”
What are the documents and registrations an entrepreneur should have on hand and prepared before entering the fundraising process?
“Be sure that you have a sound business plan, detailed financial plan, copy of passport from you and the team, proof of future demand (annual reports for previous turnover, letter of intent customers for future sales, market research), Chamber of Commerce registration, required permits to do business in your country, etc.. The more you have in place the better.”
What are the biggest tips you can give entrepreneurs to help guide them through this process?
“Think as an investor. Build up a track record, work hard and show your commitment. Be patient as well. An investors is not an ATM machine. They want to build up a relationship with you before investing into your company so be open to sharing your company information and results. Also remember, you have an equal part to play and have to choose your investor as well. Make sure you will enjoy working together!”
A final message?
“Be realistic. For ventures in idea stage it will always be hard to find money. So for new ventures, show that you are able to get your company started and overcome the first hurdles. Create track record and share your progress on your venture profile. This will create followers and is a good start.
If you have questions, please ask them via the Q&A on the platform so we can share the answers with other entrepreneurs! If you reached all of the above mentioned requirements, and you think your business opportunity is one out of thousands, please contact me directly for a follow up: saskia [at] vc4africa [dot] biz.
I look forward to hearing from you and good luck!”