When looking at your business, different investors are looking for how your business or idea fits into their overall investment strategy.
There is a series of steps that you need to follow to build interest from investors. Formulating the idea, recruiting the right team and building the market follows an order that investors understand.
Al Karaki, programme manager at Founder Institute Johannesburg, argues that there are two factors that go into an investment decision. “You have a product and customers and there’s more than one of you in case you get run over by a car. Then we feel secure saying here’s your money.”
Without passion, as an investor, I would have no faith that you will not just give up and take our money. It’s always in the back of our mind
Some investors, especially government and commercial bankers, will base their decisions on facts, while others – especially venture capitalists – are swayed by their feel for the people running a business. As Karaki points out, success with outside funders comes down to more than just the brilliance of your idea. “There is no better evidence for success than the passion you bring to your business. It’s the persistence of the entrepreneur that funders will be investing in.”
What a banker may consider to be an intangible, savvy investors realise it’s the foundation for success for all SMEs.
“Passion. When everyone is saying no no no, to keep going. It’s the ability to take an investors objection and go off and find a solution. It may take a year but people who can do that, will eventually get their money. Without passion, as an investor, I would have no faith that you will not just give up and take our money. It’s always in the back of our mind.”
No matter who you approach, government funders, banks or a venture capitalist, everyone needs to be convinced that you have what it takes to succeed. “My big word is alignment. You know what they say: if you want to achieve anything you must get your ducks in a row. Your people or your resources must all be going in the same direction.”
You need capacity. Find those marketers, find those IT people, find those legal people. Too many entrepreneurs look at those skills as investments to be made grudgingly – to investors they are one more indicator of success
Entrepreneurs, he cautions, need to realise that they cannot do everything on their own. Investors understand that in the end success will come down to a team with industry or sector specific expertise.
Investors, Karaki stresses, are looking for incredible idea run by passionate entrepreneurs built on a solid foundation. This, he says, proves to them that your business has a chance of success and they will get a return on their investment. “You need capacity. Find those marketers, find those IT people, find those legal people. Too many entrepreneurs look at those skills as investments to be made grudgingly, to investors is one more indicator of success.”
There may be times when investors will buy into a brilliant idea, but those opportunities are rare. “You will knock on many doors, but it will come down to being at the right place at the right time. By having a product and having some customers and capacity, you’ve reduced the risk for an investor.”