By Andreas Zeller
Over the past five years, more than $1 billion in fresh capital has been allocated to invest in Small and Growing Businesses (SGBs) in East Africa alone. More than 100 investment funds manage these resources, actively seeking businesses to support that make an impact.
Unfortunately, only a fraction of this capital has been deployed so far. According to investors, this is not for lack of exciting entrepreneurs with great ideas. The problem is that most of these entrepreneurs are not “investment ready.”
At Open Capital, we’ve spent five years helping entrepreneurs prepare for investment. In this post, we want to share some of the most important, yet overlooked, requirements we hear from Africa-focused SGB investors. As an entrepreneur seeking capital, make sure to ask yourself these tough questions before approaching investors. It will make it all the more likely you are successful.
Nearly every entrepreneur we’ve met has an impressive growth plan showing how far they could grow in a few years – it’s often exponential! That’s important, but not helpful for savvy investors unless it’s combined with a clear plan of how you will get your business to reach those goals. If you project to sell your new software to millions of African consumers, make sure you also plan what the first 100 days of operations will look like after you receive investor capital. Be ready to answer questions like: Who will you hire? If you produce products, how will you distribute them to reach your consumers? How will you overcome logistical challenges in Africa?
In most African markets, opportunities abound, and it’s easy to want to do it all. But savvy investors understand the value of focus, given how critical execution is to business success, especially in Africa. When you present your business to an investor, make sure you clearly explain what opportunities you will pursue today, and what opportunities you’ll be better positioned for later.
Investors realize not all entrepreneurs have a lot of money. But they want to know that business founders are intensely committed to their venture and won’t move on to the next new thing when they hit hurdles, as all entrepreneurs do. As an entrepreneur seeking capital, try to gather evidence for investors to show how committed you are in your venture. Even if you haven’t put in much money, if it’s a large percentage of your total savings, it’s still significant! If you’ve committed years of research or sacrificed other opportunities, make sure to point that out.
Not all entrepreneurs are scrupulous, and many investors have had bad experiences in the past. To prove you’re different, demonstrate how you’ve accounted for your business’ cash flows and explain how you intend to do this in the future. Set clear milestones for your growth plans and offer to send investors frequent reports of your progress toward these goals. Offer to “stage” [ask for in separate stages] the capital you require over time and agree to preconditions that you will meet before requesting each next investment.
Andreas Zeller is Managing Partner at Open Capital Advisors, an organization that provides advisory services to help high-potential businesses streamline their operations and plan for growth and capital raising. Before joining Open Capital, Andreas worked for Citigroup and Credit Suisse as an investment banker as well as the IFC making investments in frontier markets. He also has experience in the technology startup world. You can learn more about him and his organization by visiting Open Capital’s website.
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