In the world today, we continue to see the rise in self-employment and entrepreneurial activities, with more people opting to “be their own bosses.” At the same time, we have seen the growth and development of the venture capital space, both as a funding source for entrepreneurs and startups and as an alternative investment medium for investors.

Note that African startups have reportedly raised between $300 million and $1.2 billion, as put forward by various reports on the basis of available funding information from the said startups.

VC funding is easily regarded as one of the riskiest investment vehicles for investors. As such, an understandably great deal of due diligence would typically be put into any prospect VC investors consider. Despite the growing level of VC participation, evidenced by the numerous funding announcements from startup founders all around the world, many entrepreneurs and startup founders still struggle to secure funding from VCs.

To this end, we have put together a couple of tips to help founders and entrepreneurs, so that the next time you pitch to a panel of VC investors or go through a VC screening process, you can “kill it” and walk away with the cheque.

Have a Viable Business Proposition 

The first step to successfully-onboarding a VC investor begins with you. The typical genesis of a VC engagement with any founder originates with a viable business proposition from the entrepreneur. VCs would hardly go further with any discussion if they do not see value in the business. Hence, the business proposition must be one that VCs see as bankable— from the idea to the execution, the marketing, and everything else. Ensure that your business can generate sufficient returns. VCs tend to pay more attention to the following kinds of businesses:

  • Businesses that solve defined problems.
  • Businesses with high growth potentials.
  • Businesses with large market demands, because such businesses can easily generate attractive returns on their investments (if they invest).

[READ MORE: A look at some financing options for small business owners]

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Know Your Business

When an investor backs a company, they are in essence backing the entrepreneur(s) just as much as the business/product. So, it behoves entrepreneurs to present themselves as “back-able” candidates. This implies convincing investors that you are capable of delivering on your claims and the potentials of your business (provided that your business is viable).

Thus, you should be an expert in your business. This goes beyond just understanding the technical aspects of the business, as it also includes having an understanding of the management aspects. Be on top of your company’s figures (both historical financial statement figures, and other important financial information). Understand the workings and intricacies of your industry, consumers, suppliers, government regulations, industry forecasts, etc. Know your business!

P.S. VCs are very much interested in the characters and identities of entrepreneurs they back; thus, some VCs may include research on the entrepreneurs as part of their due diligence process

Validate Your Product’s Demand 

While some VCs may accept proposals from early-stage startups and take meetings with startups that are still in the ideation stage, i.e. still in the stage of crafting the idea or building/designing/fine-tuning the product or service, most VCs are more interested in startups and businesses that have proven the availability of markets for their products.

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It’s a plus if the market for the product is large, as opposed to a small/niche market. So, before you approach a VC, it is advisable that you put in enough work into building & understanding your business, and garnering traction, so that you can easily demonstrate the availability of your market.

[READ ALSO: Differences between an Angel Investor and a Venture Capitalist explained!]

Know Your Venture Capital

In the finance space, there’s a lot of talk about KYC, i.e. Know Your Client. However, I’m putting a spin on this, to now relate to entrepreneurs— know Your VC. This simply implies that you on your part should carry out some due diligence on the VCs that you approach. Investment objectives and criteria differ from one VC to another. Thus, it behoves you to acquaint yourself with the investment criteria of each VC you approach.

A VC’s investment criteria reveal important information about the VC and its vision: it reveals the VCs’ investment philosophy and the nature of businesses it seeks to invest in. For example, some VCs are sector-specific, i.e. they only invest in businesses within a particular sector or group of sectors. Knowing your VC would help you better prepare your investment pitches, and save you the stress of approaching VCs that are not a suitable fit for your business.

Have a Defined Plan 

Another issue of serious concern to VCs is how you intend to run the company going forward. They want to know your plans for the future, if your plans will be able to steer the company on a path of growth, how exactly you intend to spend their money, etc. Thus, you have to articulate clear strategies and action points that would convince them of your management capability, going forward.

Define your plans regarding marketing and how you intend to drive consumer patronage & loyalty, the “use of funds”  that would show how exactly you intend to spend their money and define your business operations so that they can understand how the business would run on a daily basis.

 

7 COMMENTS

  1. THE IMPACT OF VENTURE CAPITAL FINANCING ON SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA (A CASE STUDY OF UYO LOCAL GOVERNMENT AREA)

    The study looked at the Impact of Venture Capital Financing on SMEs in the Uyo Local Government area. Efforts by successive Government to improve on the performance and growth of SMEs had led to the enactment of different policies and activities including the Venture Capital Fund to assist SMEs. SMEs still in Nigeria have been faced with liquidity and financing challenges leading to business failures under production Industrial disputes and sometimes closures by regulatory authorities.

    In order to achieve the objectives for the study, 50 questionnaires were administered to Manager/SME owners operating within the Uyo Local Government area with a focus on Elsa Foods Ltd using convenience sampling techniques. It was generally observed that

    SME‟s prefer-financing and self occasionally received support from financial institutions. The findings further show that SMEs continue to rely on many financing options both at their conceptual and expansion stages. The majority of the SMEs were however not aware or had little knowledge about Venture Capital Financing as an alternative to financing. Firms that had benefited from Venture Capital Financing stated that they did not only receive capital inflow but were accompanied by monitoring, technical skills, and expertise, access to management, marketing and distribution and reputation for attracting further finance. The study recommends that SMEs need to recognize the potential advantages of seeking equity finance from venture capital. Venture capital fund managers can do much to encourage venture capital investment from corporate investors. Government and policymakers should play a dual role as both facilitators and educators in encouraging the venture capital process. Following the conclusions and recommendation, more detailed research involving SMEs from different industries and states is highly recommended

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