Work on backing up a bright idea
Entrepreneurs, look at viewpoint of the investor
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