Pitching your business in the African investment environment

Having been in the entrepreneurial development industry for the past 13 years, I can’t argue that gaining access to funding in Africa is not an issue. However, at the risk of being controversial, I have found that a bigger issue for entrepreneurs in Africa is their inability to articulate any compelling economic right for their businesses to exist.

In my experience, when entrepreneurs in Africa pitch for funding, it often becomes evident that they have put little thought into differentiating themselves from their competitors and they have not developed accurate costing models for their products or services. In these cases, it is worth remembering that a good idea and a set of company registration documents do not a successful business make!

The first place I always tell entrepreneurs to find financing is the profit from a paying customer. If a company’s margins are sufficient and its cash flow management strong, this will go a long way to financing the company’s growth. Despite this, we all know that most entrepreneurs start with the ‘3 F’s of Financing’: friends, family, and fools. In my opinion, this is often a good strategy, and one that is commonly used around the globe.

If neither of these strategies is feasible, an entrepreneur will have to look at more formal avenues for finance, such as financial institutions, venture capital (VC) firms, or angel investors.

Financial institutions are generally risk averse. They require collateral for any financing that they provide, which can be a major stumbling block for entrepreneurs: collateral is something that they often do not have. Institutional finance is therefore an option mainly for entrepreneurs who have established track records of starting successful businesses, or for more mature businesses.

VC firms and angel investors are starting to become more prolific in Africa. However, tying back to my first point, in all of the meetings that I’ve had with VCs and angel investors, they have expressed their incredible frustration with the weak business cases that are presented to them. For this reason, I believe that there is more money chasing good business ideas in Africa than there are good ideas chasing money.

In order to secure funding from VCs, angel investors, and even financial institutions, entrepreneurs should ensure that they present the information that these funders want to see. If you, as an entrepreneur, are pitching your business or business idea for funding, I would strongly urge you to remember the following:

• Be extremely conservative in the financial projections you present, and be prepared to explain where you derive your figures from
• Never include a market-related salary for yourself
• Show that you have an in-depth understanding of your competitive environment
• Be crystal clear on your differentiator: what makes your business unique?
• Be just as clear on the expected return on investment for your prospective funder, as well as the expected repayment period
• On a purely practical level, never exceed 15 slides in your presentation

If you are able to follow these guidelines, investors will be able to see that your business idea has been thought through, that you have taken cognizance of the business environment, and that you are willing to sacrifice to make the idea work. This will serve to allay some of their fears, remove some of their frustrations, and enable you to create a strong first impression that could open the doors for meaningful funding discussions.

By Allon Raiz, CEO of Raizcorp

Published in 2013