Work on back­ing up a bright idea

En­trepreneurs, look at view­point of the in­vestor

Sunday Times - - OPINION -

AS some­one who pro­vides seed fund­ing to early-stage busi­nesses, I re­view pro­pos­als from en­trepreneurs all the time, out­lin­ing their rea­sons for seek­ing fund­ing. There is typ­i­cally some grand idea they’d like to work on, and they of­ten stress how lack of fund­ing is their main con­straint to get­ting started.

On the other end, when I speak to ven­ture cap­i­tal­ists and seed in­vestors, their biggest chal­lenge is find­ing the right en­trepreneurs to back. The seek­ers con­tin­u­ously seek, while the fund­ing provider con­tin­ues to look for the seeker with­out suc­cess. So why do we ex­ist in such an asym­met­ri­cal sit­u­a­tion?

The pro­pos­als are out there, for sure. The chal­lenge is that when en­trepreneurs put them­selves for­ward, they are not boldly po­si­tion­ing them­selves as in­di­vid­u­als wor­thy of in­vest­ment. The ideas are there, the pas­sion and mo­men­tum are there, but not that bold con­vic­tion that would en­cour­age an­other per­son to make the de­ci­sion to back them and their busi­ness.

The peo­ple wor­thy of back­ing are the ones will­ing to take risks on them­selves, the ones who have al­ready started some­thing, how­ever small, in­stead of wait­ing for the big fun­der to come on board first.

It helps sig­nif­i­cantly to have had some trac­tion by the time you reach out to an in­vestor. No one else can be­lieve in you if you can­not prove that you can be­lieve in and in­vest in your­self first. Some busi­ness mod­els hardly need any form of cap­i­tal to get started, yet the en­tre­pre­neur is still seek­ing fund­ing and not get­ting started in the in­terim.

The other sur­pris­ing anom­aly is when an en­tre­pre­neur who has been op­er­at­ing for some years, with no record of suc­cess or learn­ing from their mis­takes, con­tin­ues to seek fund­ing. I of­ten won­der whether, if the roles were in­verted, they would take the risk of bet­ting on them­selves and mak­ing that in­vest­ment? Prob­a­bly not.

I get asked all the time about how I pick the right per­son to back. There is no rocket-sci­ence for­mula to it. But it is en­cour­ag­ing to come across en­trepreneurs who are se­ri­ous about get­ting the ba­sics right be­fore they ap­proach an in­vestor.

Or­gan­i­sa­tions coun­try­wide are in­creas­ing their in­vest­ment in pro­vid­ing en­tre­pre­neur­ial sup­port pro­grammes, for free. This leaves no ex­cuses for not get­ting a busi­ness’s fun­da­men­tals in place.

Be­yond the ba­sics come the pro­files of the en­trepreneurs them­selves. As I learnt dur­ing my time in Sil­i­con Val­ley, as an in­vestor you do not back the busi­ness, you back the en­tre­pre­neur.

It is all about in­vest­ing in the right “jockey”, not the horse, it is of­ten said. The right jockey in­creases the chances of suc­cess.

The ques­tion en­trepreneurs should ask them­selves is whether they are com­ing across as the right jock­eys, wor­thy of be­ing backed.

Be­ing a good jockey is not about hav­ing the right cre­den­tials and qual­i­fi­ca­tions — it is about the right at­ti­tude, mind­set and level of com­mit­ment to your cause. That is what early-stage in­vestors look for.

Af­ter all, they are choos­ing to as­sume a high level of risk by tak­ing on early-stage in­vest­ments in­stead of es­tab­lished busi­nesses. As such, they are in­ter­ested in in­vest­ing in some­one wor­thy of es­tab­lish­ing a long-term re­la­tion­ship with, in­formed by trust. This re­la­tion­ship means they are ready to back you through mul­ti­ple ven­tures, even if you fail along the jour­ney — as long as your next ven­ture is in­formed by what you have learnt from past fail­ures.

It is high time en­trepreneurs started giving more thought to what goes through the mind of po­ten­tial in­vestors when they are stand­ing in front of them. It is worth do­ing some re­search on what kind of in­vest­ments that fun­der is will­ing to back.

For ex­am­ple, I have pri­mar­ily backed en­trepreneurs in Eastern, West­ern and South­ern Africa, which means it would be point­less com­ing to some­one like me with a busi­ness pro­posal that does not have a panAfrican out­look. Ev­ery in­vestor has their own pref­er­ences and con­straints, as does the en­tre­pre­neur once they have the long-term re­la­tion­ship view in mind. A sim­ple back­ground check will go a long way to­wards sav­ing time on in­vestor leads that are un­likely to ma­te­ri­alise.

As a coun­try with some of the low­est lev­els of youth en­trepreneur­ship in the world, cou­pled with the high­est lev­els of un­em­ploy­ment, we need to take some ac­tion. Youth Month might be a good time to con­sider turn­ing things around. The youth of 1976 set a great ex­am­ple for us all about get­ting started and tak­ing ac­tion, in­stead of wait­ing for in­vestors to back you be­fore you even start do­ing any­thing.

Get started and you will be sur­prised at the wealth of op­por­tu­ni­ties that lie on the other side.

It is all about in­vest­ing in the right ‘jockey’, not the horse

Sikhakhane is a global speaker and busi­ness strate­gist on lead­er­ship, en­trepreneur­ship and do­ing busi­ness in Africa, with an MBA from Stan­ford Univer­sity

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