Entrepreneurs must share some risk with venture capitalists
Suck it up!
IF YOU’RE LOOKING FOR a venture capital firm to back your start-up company you need to be realistic about your expectations… and you need to learn to look in the right place for the correct sort of funding. That’s the advice from Justin Stanford, CEO of investment firm 4Di Capital, who last week lamented the fact entrepreneurs in South Africa were approaching him for big money investments but weren’t prepared to assume any of the risk.
“When I launched my first start-up I was surviving on R2 000/month,” says Stanford. By contrast, he says entrepreneurs are now pencilling in market-related salaries in their business plans and expecting that to be funded by venture capital money.
Stanford also expresses concern that investors are too quick to seek out larger investments without having cut their teeth proving their business model works or they can even develop viable technology. “Where are the businesses looking for R50 000 to R100 000 to get going?” However, entrepreneurs counter-argue early stage investments of that size aren’t juicy enough for traditional venture capitalists and lending channels, such as the banks, have little or no appetite for start-up investments. That leaves a gaping hole in SA’s funding market.
However, help may be at hand from the recently launched Crowd Fund, the brainchild of South African entrepreneur Eve Dmochowska. She’s pulled together some of SA’s top technology entrepreneurs and investors, including Stanford, Justin Spratt (from IS Labs) and Vinny Lingham (now based in Silicon Valley. Those entrepreneurs will serve on a board that will select investments and mentor technology entrepreneurs to get their businesses off the ground.
The Crowd Fund concept is quite an innovative one, in that it’s attracted investments from private individuals who have pledged their own funds. To date, 371 investors have raised R1,2m in funds to support start-ups. That shows that angel investors are keen to come to a party.
However, those seeking funding also need to come to the party. Here are some tips funders have prepared for entrepreneurs seeking venture capital funding: