How we got our slice of venture capital pie
SMEasy CEO, Darlene Menzies gives us the top 5 strategies they focused on to be funding-ready
The investment followed a series of achievements for the startup including winning international awards, and a proven demand for their platform - having registered many small business customers onto the platform since the official launch in mid-2014
The investment from Grovest, which invests in early-stage businesses, was not a first for SMEasy. They also received venture capital from other companies including 4Di Capital and the ASISA Enterprise Development Fund.
At the announcement, the company said the investment from Grovest was further proof that venture capital culture is gaining traction in South Africa.
We speak to SMEasy CEO and serial entrepreneur, Darlene Menzies, about the top 5 strategies they focused on to become funding and investment-ready.
5 strategies SMEasy focused on to be funding-ready
- Product validation
Menzies says it is paramount to be able to demonstrate product validation by customers and partners when you are wanting to secure venture capital.
“While winning awards is impressive, the most compelling proof to validate your product’s merit is that customers are buying it and that they keep using it,” she says.
With awards such as the National Innovation Award and the World Summit Country Award, Menzies says they were also able to demonstrate to investors that not only were small business customers buying their product but they were sticking with it and their drop-off rate was very low.
She also adds that they also had endorsements from several blue chip companies who recognise SMEasy as an ideal solution for their enterprise development programme beneficiaries.
The product enjoys widespread validation and is promoted by national stakeholders including USAID Financial Sector Programme and the South African Institute for Professional Accountants (SAIPA).
- Early traction
“Early traction goes hand in hand with product validation,” Menzies says and adds, “Investors want to see traction!! Traction simply means sales have started to flow, that customers are buying your product. It doesn’t matter how impressive a product looks and sounds when you pitch and do a demo; if you have no customers investors are very reticent to invest. Early sales are the key to securing investment, it gives the investor the assurance that people are willing to spend money to buy your product.”
- Strong team
Investors know that your team is the make-or-break of your business, explains Menzies, “No matter how passionate you are as the owner, when your business starts to scale it’s the quality of your team that will determine your success or demise.”
Investors want to see that you have people with the appropriate skills and experience to ensure success. “Building a strong team is often difficult in the beginning months and years of the business as you often can’t afford large salaries although you want to secure the best staff. The secret is in selecting the right people, skilled people who are passionate about your product and willing to stick with you through the lean years,” advises Menzies.
SMEasy’s Grovest deal also includes the appointment of non-executive director, Clive Butkow, as chairman of the board. Former chief operating officer at Accenture South Africa, Butkow brings with him 28 years’ experience in management consulting.
A strong networker herself, Menzies is on the board of the Durban Chamber of Commerce and works across business, government and civil society sectors nationally.
- Sound financial management
One of the key components to readying yourself for investment is to ensure your finances are in order. Menzies says, “Good recordkeeping and accounting is crucial, not only for decision making in your business, but also in preparation for the due diligence prospective investors will undertake.”
You have to be able to produce financial statements that have been audited or signed off by an accountant and also have up to date management accounts, Menzies states. “Even as a small business initially, we chose a large company, Deloitte, as our auditors to give prospective investors the peace of mind that our finances were overseen by a well-known and respected auditing company.”
- Credible financial model (your projections)
“Developing a financial model is a critical part of preparing for investment,” says Menzies, adding that you need to produce a spreadsheet that shows your projected income and expenses over three years demonstrating that the business is going to make decent profits and is therefore worth investing in.
“It is wise to put it together in a way that enables you to create various scenarios i.e. if you change your sales projections it should alter the related figures such as the revenue and profit; this way you can easily demonstrate to investors how an increase or decrease in sales affects the profitability of the business. It is very important that you are very familiar with your financial model; even if it developed by a consultant, you need to get your head around the figures and understand how to change it so that you are confident in presenting it to investors and are able to answer any questions,” concludes Menzies.
With a mandate to investing in high growth, scalable, disruptive private companies, Grovest found SMEasy's financial model credible enough for them to invest in and assisting them by providing both growth capital and management support to gain traction and scale.