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Getting investor ready

24 Aug, 2018 - 00:08 0 Views

eBusiness Weekly

Kudzai M. Mubaiwa
As the nation begins to move forward after election there is need for small business to be inward looking.

Many of those that are already operating may have need for additional capital for on-going activities, some may have to completely iterate, yet others will start from scratch, all depending on how they read and interpret the environment going forward.

Such capital may be accessed from many different sources, and once direction and policies are clear (and therefore the matching terms and conditions) we are likely to see improved access to credit. What is then necessary is for the beneficiaries of such investment to make themselves investor ready.

This week I spent two days in an agriculture financing and innovation conference where there were presentations made from around Africa. I was especially interested because the conversations were around the use of technology/digital innovation in one of the major primary industries in Zimbabwe, as well as the optimal methods of financing the businesses thereof.

Of particular interest was a presentation by a Kenyan colleague who works with an innovation support programme that assists emerging agro entrepreneurs. I noticed some similarities and differences in their funding situations versus the Zimbabwean one. Here are some learnings and points of action.

The typical start-up financing cycle of their small businesses in Kenya includes the start-up, early stage, growth and mature stages. Naturally the types of financing at each level differ.

At the start-up stage, financing is typically from family and friends. These are well-wishers known to the project promoter and they receive financial assistance on the basis of the relationship as we as trust that they will utilise the support received on the project.

Entrepreneurs must never undermine this level of funding as it helps many get off the ground and develop at the very least a minimum viable product which is their proof of concept. On this score, the Kenyans and Zimbabweans share a common path, indeed the greatest source of start-up capital for many is the benevolence of those who know them already, in the form of grants and soft loans.

As people become more aware these small amounts are given only on the basis of a demonstrated idea, a clean credit history, and reasonable social capital. They are most useful for micro-enterprises still searching for footing and their backers are most interested in impact — giving a leg up to the business promoter.

At the early stage typical funding sources are angel investors — typically affluent individuals who provide capital for a business start-up — often in exchange for some ownership equity or convertible debt. I would be hard done to find many of these in the Zimbabwean situation, and here our counter-parties in Kenya are by far better placed, as they have a very robust angel investor scene.

Perhaps this can be attributed to their fairly vibrant technology ecosystem, they have many innovation spaces that are hosting events on the regular, daily events in fact and they have led on the continent in pushing out new business, innovations and start-ups.

Kenya also has more than double the numbers that Zimbabwe has in population and so scaling up in their economy is much easier. In Zimbabwe we have also seen the rise of innovation spaces, from as few as five end of 2013 to more than twenty now some five years later, but these are lacking in depth and there is scarcity of success stories to point at. The economic situation has not helped at all as we also have structural problems that may scare off even the domestic investors.

However it is my belief that in this particular type of funding is great opportunity for the affluent investor — residents that better appreciate the environment will be helpful in supporting the emerging entrepreneurs, but the investment recipients themselves will need to do a lot of groundwork to show an investment case based on evidence not just assumptions.

The diaspora are in my view one of the best avenues we can leverage for angel investment — they have access to greater funding than locals but also appreciate the dynamics of home. A serious growing business must think about getting their house in order and reaching out to them with a full pitch deck.

Following this is the growth stage, where venture capital or private equity can be utilised because traction can be measured and even forecast within a reasonable margin of error.

This kind of capital is again fairly available in Kenya, they are the African home to many large global firms of such a nature or have strong partnerships because of the level of activity there.

In Zimbabwe we do have a few private equity firms but the amounts they tend to have available are upwards of five million and most small businesses will not have reached such capacity, considering that the Zimra definition of small enterprises implies a cap of $500 000 turnover. Again there is room for mid- tier type venture capital funders in Zimbabwe but the companies seeking investment must also put in the work and ensure they have solid demonstrable results, customer traction, patented intellectual property, a thorough business plan, a proper core team, and a flawless pitch.

Put simply one must over-prepare. In a world that has competition a company must be very clear on their model and how they differentiate themselves. These elements can be taught in business incubation spaces as they are often not taught in our mainstream universities.

The average Kenyan start-up owner is much more ready for this kind of investment than we are in Zimbabwe because a lot is invested in getting them aware by such spaces. Business owners must actively seek out spaces that get them investor ready.

Finally, there is the maturity stage the point at which revenues are set — private equity can be a source of funding but also a company can go public through a listing. Many established businesses in Kenya have taken the private equity route, according to the presenter.

In Zimbabwe we are more aware of the stock exchange as a way of raising capital and there have been submissions for a small-scale enterprise version. What company owners must know is that once a company lists — or goes public — then it is open to scrutiny at every level and has to share certain information with other shareholders.

While this is a great way of raising capital, the question is more are founders ready to share ownership? Quite recently a similar action being taken is that of floating company tokens — the premise is the same as stock market — get in more owners who bring in money and you give them a share of your business. The golden thread in all this is that for your company to grow you will require some kind of investment. Check yourselves and be ready.

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