The Financing Challenge - Part 4: Getting Financing, what the Experts Say!

Yesterday update from VC4Africa to my mailbox headlined: "Rwanda's mobile commerce app MERGIMS secures USD 90k, looking for another USD 150k growth investment"

This is the kind of news I would like to read every day concerning Africa: It signals progress, growth and reinforces our pride as a great continent. Imagine we had at least 54 of this every day in Africa, this would mean in very rough estimates, 19,710 small businesses that would have grown, and estimate each employs an average of 2 people, that would be 39,420 Africans out of unemployment and providing for themselves and their families, not to mention the number of Africans inspired by this. This is growth, job creation, wealth creation, and a positive movement; the right direction for our continent.

Rwandan born, Muhire Louis Antoine, Founder & CEO of Mergins, in his follow-up statement says: “Now we are looking for growth money of about USD 150K. We have proven the concept in 2015, we have repeating clients and the sales are growing at a rate of 55% a month with our now only available Android version.”  This is music to investors' ears, because it highlights some of the things investors look out for before signing out their money to a pitching entrepreneur:

Paying customers – is anybody willing to pay for what you are selling?

Momentum – show me growth. Do you have a growth history and how beautiful is it?

Vision and future – do you have a reading of your business, ideally in 3 – 5 years?

Management – show that you know your business and are passionate about it? Who are the other guys on board with you and how good are they?

I picked excepts from this article https://www.entrepreneur.com/article/201826, which complement these points

"How much money have you personally put into your business?” Putting your own money into the business is stronger proof of your belief in it!

"How can you possibly substantiate gross revenues of $200 million in year three?”  Do you understand your industry and the market?

"Why are you trying to produce, market and distribute 10 products at the same time before you see if a single one sells at all?" Are you focused or just running in every direction? Do you even understand your business? (there is a difference between knowing and understanding!)

Though the general recommendation is to bootstrap first and raise money after, you have to be ready for that time when you may have to go looking for someone else’s money. That’s why it is important that you are thorough with your business from day one, and avoid cutting corners; that is if you have a growth vision. Investors will dig into your business and your life before parting with their money. Your pitch to them is just to wet their appetite, the really decision comes after due diligence.

“It is entrepreneurs who must adapt to the needs of lenders and investors” they say, but never forget that you have a choice. There are many investors out there or many people with money who would be willing to invest given the right incentive and guarantees. Also it is not just about getting money, give preference to investors who can bring real added value over and above their money: expertise in a particular domain, experience, linkages to potential clients and partners, lobbying where relevant, etc. That’s why you also have to do your own due diligence on those wanting to invest in your business, it is a two-way traffic. This also means that you should have your checklist of who your ideal investor should be, and tick it off as you go along.

Chances are that you will need external financing someday, particularly if you have an ambitious growth vision. So invest in knowing the options out there and get yourself ready so that when that time comes, you have the odds stacked in your favour. 

Next week, we will be closing this 5-part series with Part 5:  financing options for small businesses.  I will be sharing an interesting presentation from a brilliant African with some smart financing options you should consider.

Remember our recommendation from Azems Value Add if you have chosen to start your entrepreneurial journey: Start from where you are and  never forget "Small will always be Big"