The big questions you have to be able to answer to get that funding
It comes down to team, market and profit, writes Rick Ed
I met Justin Stanford at a SAVCA (venture capital and private equity association) event a few weeks ago. Everyone else was dressed smartly as befits big money. Justin wore fashionably torn jeans. And he was the guest speaker.
But how did Justin come to be so respected in the rarefied atmosphere of high finance? He is a hands on entrepreneur. When he realised that a great Slovakian anti-virus product could be tweaked to suit our market, he persuaded the developers to give him sole rights to sub-Sahara. Thanks to him 8% of us have now have ESET on our machines.
Together with Vinny Lingham who is best known for Gyft or Dragon’s Den, depending on how you like your entrepreneurs sliced, they started Silicon Cape, a support body for techpreneurs in iKapa.
In 2013, Forbes named Justin one of their "30 under 30: Africa’s best young entrepreneurs." On top of that, he is also a sought after venture capitalist and angel investor with a recent big commitment to South African fitness startup FitKey. He’s quite a successful and popular guy.
The 3 big things
What he told the erudite audience at the SAVCA event was what I had hoped to hear. Venture capitalists have been there, they and angel investors have mostly been entrepreneurs themselves. Justin is no different. He has seen pain. Big time. If your great idea is not going to fly, he’s not backing you.
When evaluating a business, there are three key areas he says: the team, the market and the product. The second two are variable. The market is fickle and changes with the weather. Today they are eating out of your hands and tomorrow, they’ve never hear of you. And your product is cutting edge today and obsolete tomorrow.
The one thing that is consistent is your team. Before investing in your business, venture capitalists want to believe that it is likely to succeed through all the challenges that it’s going to face. How will they know that? By looking at the entrepreneur and his or her team. What’s your track record? What other businesses have you started? How have they fared? What did you do when the going got tough? Did you bootstrap?
How knowledgeable are you about the field you are operating in? How well connected are you to other players in the same sector? What does your business model look like? Is it realistic? Have you allowed for lean times? Do you have warm-body customers 'signed up'? How will you scale the business when it’s ready to grow?
How much have you personally invested in your business? How else have you raised funds? How much money do you need, for how long, how will it be used? Are you happy to give up some equity and say in your business? You are being rigorously evaluated, how rigorous were you when identifying a prospective investor?
If you have solid, convincing answers to these questions, you have a chance at getting financing.
- You can find South African angels and VC at angel.co/south-africa/investors and investmentnetwork.co.za
About the author: Rick Ed at age 60 sold his business to a younger and more energetic management team. He now educates entrepreneurs on strategic decision making and sales. Rick is a business advisor at DoBetter.Business.