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Financial Literacy

Tips on how SMEs and startups can secure venture capital funding

We have put together a couple of tips to help founders and entrepreneurs, so that the next time you pitch to a panel of Venture Capital investors, you can “kill it” and walk away with the cheque.

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venture capital

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.

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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:

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  • 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]

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.

Patricia

[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.

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9 Comments

9 Comments

  1. Mrs K

    May 28, 2019 at 3:44 am

    Great site! Quite useful, thanks.

  2. Mrs K

    May 28, 2019 at 3:46 am

    Please send me stuff on dairy business in Africa.

  3. Orji Stephen

    October 22, 2019 at 6:45 am

    It was helpful

  4. Project Topics

    October 22, 2019 at 4:57 pm

    Wonderful article we have

  5. Project Topics

    October 22, 2019 at 4:59 pm

    Wonderful article we have here………….Kudos

  6. Etido James

    October 23, 2019 at 2:01 am

    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

  7. Moses O. Attah

    October 25, 2019 at 10:35 pm

    This is quite informative. Pls, how can we find Ventures Capitalist? Thanks.

  8. Pingback: Who Else Needs To Achieve Success With Venture Capital | Xiaomi Product

  9. Pingback: Who Else Wants To Have Success With Venture Capital | ИППиПК

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Billionaire Watch

Want to be like Warren Buffet, Michael Phelps? Here are their secrets

The distinctiveness among Buffet, Dangote, Ovia, Phelps, Bolt, Musk, is not what they do, but how they do it and how often they do it.

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Warren Buffett

Michael Phelps won 22 Olympic medals (18 gold), how did he do it? Well, he trained and trained and trained, then he ate and ate and ate every day. He was also blessed with natural attributes i.e., he was tall.

So, wait, if I am tall and eat, and train, I can also win 18 gold medals? No! but stay with me.

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Warren Buffet likes to invest. He reads research reports, likes numbers and is always looking a discount deal on great stocks. Ok. So, if I am good with numbers, research buy great stocks I will become as rich as Warren Buffet? Well, maybe not as rich but you will earn more from your investments. The distinctiveness among Phelps, Bolt, Buffet, Musk, Dangote, and Ovia, is not what they do, but how they do it and how often they do it.

READ ALSO: Investing in Cryptocurrencies during this economic shutdown; here’s your need to know

Let’s look at an Olympic swimmer like Michael Phelps. When Michael was eight, he wrote out his goals; he wrote, “I would like to make the Olympics,” then listed his time goals for the various races i.e. breaststroke, freestyle etc. At the age of eight, this future Olympian had visualized his goals, written them down, and put a date for accomplishing them.

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When seeking to create a financial plan, it is impossible to achieve success without visualizing out a goal on paper. Imagine creating an investment plan without any idea of a retirement date or income or rates of return. It’s impossible without a clear road map to determine how much to save and invest for five years. During his teenage years, he trained “every single day, 365 days a year, Sundays, Christmas and Thanksgiving days included… and twice on his birthdays,” says his coach, Bob Bowman.

If an investor saved N1.00 every day for 5 years at 0%, that saver would have N1,826.00 What if those savings increased to N5.00 and were invested at just 5% annually? Then the savings pot will become N10,373.04. Yes, inflation will erode the value after 5 years, but applying a 13% inflation rate, the saver still has a real saving of N5,170.14.

READ MORE: Top 10 risks Nigerian businesses will face in 2020/2021 – Report 

So, the second lesson we take from Olympic champions is to start early, save, and then invest constantly. Micheal Phelps is a swimmer, a sport for endurance and speed. What do endurance athletes like swimmers and marathon runners eat? Food rich in carbohydrates; they need the carbs to fuel the massive amount of energy they expend during their sports. Phelps, for instance, for breakfast eats as many as 12,000 calories prior to his races. His breakfast consists of “three fried-egg sandwiches, three chocolate chip pancakes, a five-egg omelette, three sugar-coated slices of French toast, and a bowl of grits.”

What does a sprinter like Bolt eat? Not calories but lean protein, eggs, meat, fish, dairy. Protein allows muscles to recover and develop after sprinting, which causes minute damages to muscle fibres that can be easily converted to energy. So, two different Olympic champions, each multiple gold medal winners, but because of their different sports, they eat very differently to achieve a different objective.

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Similarly, in investing, each investor is different, bond investors have instruments that have 30-year durations as opposed to stock traders who may be looking to buy and flip a stock in hours. What is key is to invest according to a stated objective and risk profile.

Patricia

Where the investor has a longer endurance factor to risk, meaning the investor can accommodate volatility in his earning, that investor will be comfortable investing on equities. Equities are higher-risk investments and can lose all invested capital but can also gain 100%.

However, where the investor has a lower risk endurance, then the investor will fill his plate with lean risk asset classes like sovereign bonds which offer lower volatility to stock and deliver a fixed return, but suffer if interest rates rise.

Thus, our third lesson from the Olympians, the food each investor eats, is a function of his individual sport. Where the investors have lower risk, his asset allocation diet is different. Each investor must tailor his asset allocation to his objectives and investment goals.

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Investment Tips

Proxy Voting: Making Your Voice Heard Inspite of COVID-19

Proxy voting is a process where one person chooses another to represent him or her in casting a vote on his or her behalf.

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Proxy Voting: Making Your Voice Heard Inspite of COVID 19

One of the privileges of owning shares in a company is the ability to attend the shareholders’ meetings and vote on important issues about the company. In most cases, such issues touch on dividend declaration, election and/or reelection of directors, authorization to fix independent auditors’ remunerations, and the election of members of the audit committee, among others.

It has been observed that shareholders love to attend such annual general meetings in person for the pride of place it provides, as well as the social status it bequeaths to the attendees in addition to the souvenirs they receive during such meetings.

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Unfortunately, that era of a social event involving the physical gathering of shareholders seems to be going extinct, thanks to COVID-19.  However, in spite of the devastating effects of COVID-19, and the changes it is bringing to our social life, shareholders can still make their voices heard during non-physical shareholders’ or annual general meetings. This they can do using proxy votes.

What is Proxy Voting: Proxy voting is a process where one person chooses another to represent him or her in casting a vote on his or her behalf. Proxy voting has not been more important than in the present COVID-19 times. In reaction to the pandemic, proxy voting is being used in areas outside corporate governance. For example, the US House of Representatives is pushing for proxy voting as a means of getting things done in the house. In a proposal released by the House Speaker, Nancy Pelosi, US lawmakers would be allowed to cast votes for their colleagues who are not in the Capitol in person. That underscores the advantage and the increasing importance of proxy voting.

Nigerian Companies and Proxy Votes:  Proxy voting is not new in Nigeria, especially among Nigerian companies. Whether it has been effectively used or taken advantage of is another question. However, Nigeria’s Corporate Affairs Commission (CAC) has been proactive and forthright in its quest to ensure that companies in Nigeria and Nigerian shareholders alike, take advantage of the proxy voting process in keeping with the social distancing rules put in place by various governments to curb the menacing COVID-19. The CAC has therefore asked companies to take advantage of “S.230 CAMA on the use of proxies in holding their Annual General Meetings.”

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(READ MORE: IMF, World Bank to hold virtual meetings over Coronavirus epidemic)

In line with the availability of the proxy voting process as a way to give every shareholder a voice and the encouragement and enablement from the CAC, many companies in Nigeria are complying with the advice. A visit to the website of the Nigeria Stock Exchange indicates that all the 30 companies that notified the public about their annual general meetings via the Nigeria Stock Exchange, since April 1, 2020, included notices or indications of the need for proxy votes in such notifications. Many of them even included links to live-stream the events, for those who would like to participate online.

Proxy Voting: Making Your Voice Heard Inspite of COVID 19

Brace for Change: There is no doubt that COVID-19 has changed and will continue to change the way certain things are done. From the look of things, proxy voting may become the new normal in corporate governance and conduct of shareholders Annual General Meetings.

Shareholders, big and small, should start getting used to voting by proxy, especially those who have not been doing so in the past. It is only by so doing that you will make your voice heard, in the affairs of the company in which you have worked so hard to invest in.

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Patricia
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Coronavirus

COVID-19 reveals that many Nigerians have no emergency savings

The playout of events following the lockdowns resulting from the ongoing COVID 19 pandemic shows that Nigerians do not have emergency savings

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Though we are still grappling with the effects  of COVID-19, it may not be too early to begin to take stock and find out what we did well during the pandemic and what we should have done better.

Almost everyone’s radar has been on the ill-preparedness or lack of appropriate response by the government, with little or no time for an inward look at ourselves.

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The type of government we have in Nigeria should not have left anyone surprised at their response to the pandemic, especially when it came to the welfare of the populace. What do you expect from a government that is dysfunctional, at best?

With such government, it is time for Nigerians to begin to watch out for themselves and prepare for the unforeseen, like the times we are in currently. The playout of events following the lockdowns caused by the ongoing COVID-19 pandemic shows that Nigerians do not have emergency savings.

According to a recent publication from one of the national dailies, “Barely one month of a lockdown of Abuja, Lagos and Ogun state, millions of Nigerians had become stricken with hunger. Many could not bear an extension of the movement restrictions.” The ensuing protests were indicative of the fact that many Nigerians were living off their daily incomes with no savings to fall back on.

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High Poverty Level

Many may have asked how they could save without having funds, to begin with. Agreed, the level of poverty is high in Nigeria; however, people should know that having savings is not a luxury, but a necessity. It does not have to be large, but putting aside something, no matter how small on a regular basis goes a long way in times of emergency.

I have seen images of Nigerians who surprised themselves and others with how much they saved over time in their piggy banks. There is no hard and fast rule of how much one should have in emergency funds, but there seems to be an agreement among financial analysts and planners that having the equivalent of 6 months’ expenses in your emergency savings account is the ideal.

The author of the book “Richest Man in Babylon” stated it clearly that if you do not save, it means that you have paid everyone else but yourself.

How to Start Saving

Pay yourself first: In line with the instructions in “The Richest Man in Babylon,” when you receive your monthly salary or collect that sales proceed from your business, “pay yourself first” by saving at least 10% of your collections or salary. For the salary earner, set up a direct deposit account where the money would be taken out of your pay directly into a bank savings account. By so doing, you are forced to save.

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(READ MORE: If you experience these signs then know your salary is not enough)

Patricia

Cultivate the savings habit: Just as spontaneous buying is a habit, form the habit of saving. Do not see saving as putting aside the remnants (if any) after all your expenses. If that is your attitude to savings, then you fall into the group that pays everyone else but themselves.

One thing is certain; as long as you have the money, there will always be something that is going to demand that money from you.

 

Remind yourself to save: If you are a salary earner who does not want to set up a direct deposit from your paycheck or you are a businessman or woman of any means, you can set up a savings reminder around the time you receive your salary or around your peak business time.

One website that can help you with this is here. With this, you can send an email to yourself to be delivered around the time you expect to receive your pay or business income, reminding yourself to save. Just like you set an alarm on your mobile phone, you can do so with a reminder to save.

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Start Small ASAP: The Bible says that if you are not faithful with small things, how can you be faithful with larger things. You do not need millions to start saving, all you need is the will, the determination, and consistency. So, start small and start now, but be consistent.

Reduce your Expenses: As already noted, one of the reasons that people do not save is because their expenses keep increasing, even when income sources are shrinking. If you find yourself in that situation (and you surely will, at one point or the other), cut down on your expenses and make them fall in line with trends in your income. Avoid spontaneous, emotional and flamboyant buying. Buy out of need, not out of want.

(READ MORE: Between saving, investing, speculating, trading & gambling)

Why It Seems Difficult to Save: To a whole lot of people, it is difficult to save because they live in the now. This is what financial psychologists call scarcity of attention. This scarcity of attention stops people from seeing what is really important and makes them see the urgent current expenses they need to cover.

5 Money Mistakes You Might be Making, COVID 19 Shows that Many Nigerians have No Emergency Savings

One reason why it is difficult to save is that while the expenses keep rising (out of increased need and inflation), sources of income keep shrinking or stagnating. The good thing however, is that we have the option to shrink our expenses in line with shrinkages in our income, but often times, we do not choose to do that. That is where the inability to save starts from.

Conclusion: If there is any lesson, we learned from the sudden outbreak of COVID-19, it is and should be that emergencies happen, and efforts should be made to cushion the financial impact of such emergencies by preparing for them in advance through emergency savings.


 

Written by  Uchenna Ndimele uchenna@mutualfundsnigeria.com

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