Funding is one of the challenges faced by many entrepreneurs in South Africa. In the Real State of Entrepreneurship in South Africa 2017 survey, many entrepreneurs indicated that they required education specific to the practicalities of running a business such as marketing support and business planning.
According to the Seed Academy, which conducted the survey, there were more than 1,200 respondents this year. In addition, to deepen its insight into the true state of entrepreneurship in South Africa, the survey expanded its scope from start-ups to all entrepreneurs at any stage of business development.
It was found that 18% of respondents had attempted to get funding from banks or development funding institutions such as the Industrial Development Corporation or the Department of Trade and Industry.
“Some entrepreneurs indicated that they simply didn’t know where to go for funding, especially in light of the fact that most early-stage business funding requirements are below the R100,000 threshold,” said Donna Rachelson, CEO of Seed Engine, which incorporates the Seed Academy and the WDB Seed Fund. This is the third annual survey the Academy has conducted.
Here are some learnings to prepare yourself before you approach an investor for funding:
THE DIFFERENT TYPES OF FUNDING
Online publication Entrepreneur Magazine lists the different forms of funding as angel investment, funding from a bank, crowdfunding, funding for previously disadvantaged individuals, and bootstrapping.
- Angel investment is when a wealthy professional provides you with start-up capital in exchange for equity in the business or a fixed percentage interest on the loan. Angel investors can be individuals or can be part of an angel network, to distribute risk.
- Bank funding depends on the different types of loans available and which kind is best suited to your needs. You need to provide a full set of financials and a comprehensive business plan for the bank officials to examine.
- Crowdfunding is similar to angel investment, but many individuals may pledge different amounts to the business in exchange for equity, interest or other more creative returns. There are South Africans platforms for crowdfunding: startme.co.za, thundafund.com and crowdfunding.co.za. You can also try international crowdfunding platforms such as kickstarter.com, indiegogo.com and rockethub.com.
- Funding for previously disadvantaged individuals can be in the form of a grant, loan or tender, which is given to previously disadvantaged people who have small businesses.
- Bootstrapping means starting and growing your business without any external help.
ESSENTIAL ELEMENTS AN INVESTOR WANTS
Marketability, sustainability and the business owner’s passion for the project are the essential elements that would interest an investor, says Gerrie van Biljon, executive director of Business Partners.
Van Biljon also advises that the entrepreneur knows every detail of their idea and business plan. “Your value proposition should come through succinctly – what are you offering to whom, and why will they be prepared to buy it.”
USEFUL DOCUMENTS FOR PREPARING YOUR BUSINESS PLAN
- Download the Industrial Development Corporation’s guidelines on how to prepare a business plan. GUIDELINES HERE
- Download the Seed Academy’s Essential Guide to Funding. DOCUMENT HERE
- Download the Yali Network’s business plan checklist. DOCUMENT HERE
EXPERTS ON WHAT INVESTORS WANT
Tafadzwa Madavo, business development manager at Riversands Incubation Hub, told SME South Africa that if entrepreneurs were looking for funding, they should test their ideas first. “They call it a minimal viable product. Don’t look at getting a R1-million for a concept you haven’t even tested.”
Robynne Erwin, operations manager of FinFind, agreed with this sentiment. “If you are still at the ideas stage, you need to be aware of the fact that ideas are considered to be cheap. [It] only gets a value when you have taken a step to make it real.”
Andrew Louw, CEO of +Louw, advised that the entrepreneur must be able to explain their idea simply and easily in 30 seconds or less. “Focus on the things you can do easily without raising funding. Also, bootstrap as far as you can without needing to raise extra capital.”
Speaking to the University of Pretoria’s Gordon Institute of Business Science, social entrepreneurs unpacked lessons they had learned when approaching investors.
Pat Pillai, founder of Lifeco UnLtd, said the fundraising secret was to always trade for change. “Whether it is an investor, or it is someone who pays you a fee to make sure you grow young entrepreneurs in the most deserving and unprivileged part of our country, there’s always a report back on a return.”
Sharanjeet Shan, founder of the Maths Centre, said that clarity and conviction about who you were and what you wanted to do was important. “If you’re not talking from the gut, it’s not going to work.”
She added: “Why should I invest money in these people? I’m investing money because somebody’s life is going to change. If one person’s life changes, the lives of their community and the people around them change.”
Stacey Brewer, co-founder of the Spark School, said she had learned that you should not change your mission nor your vision based on funding. “Believe in what you are and keep going, keep going.”
Gregory Maqoma, founder of the Vuyani Dance Theatre, explained the conversation he had with his funders: “I allow them to understand the vision.
“I also allow them to understand where we’re going — we talk about a five-year strategy. So, it’s a long term commitment rather than just focusing on a project. We align ourselves with what is desirable in terms of the space that we are serving.”
His company was contributing to a bigger picture. “We can also be in a position where we can say it’s not only serving the community directly affected by the Vuyani Dance Theatre but it’s also about influencing policy; it’s about influencing change on a bigger platform, on a bigger scale.”
KNOW THE TERM DUE DILIGENCE
You should educate yourself about due diligence if you are on the hunt for funding for your business, or if you are hoping to work with the government or with bigger companies as a supplier.
SME South Africa explained that small and medium enterprises underwent due diligence when an investor evaluated the business as a potential investment opportunity, or a buyer was looking to acquire the enterprise.
“Due diligence is a process where a business owner investigates the organisation based on their needs or requirements. The investigation can be legal, financial or anything that the business owner wants to evaluate before they contract themselves,” it reported.
This article first appeared on Kasibiz.co.za