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Top tips for raising angel investment funding as a tech start-up in South Africa
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Tough or not? Entrepreneurial ventures find it notoriously tough to get funding in South Africa. But is it really that hard? More and more commentators suggest that it’s a misconception, borne of several factors.
Here are a few issues that almost every entrepreneur seems to encounter, with guidance to getting around it.
Pick the right funder
Venture capital (VC), growth capital and angel investments are the early-stage funding mechanisms of choice. They come in at different stages of maturity of the start-up business, and accept varying degrees of risk. Of these, angel investors are the “easiest” to convince. They invest smaller sums at the very early (pre-commercialisation) stages of the business, when activities are still relatively low-cost and the venture doesn’t yet have a proven track record.
Couch the proposal in terms acceptable to an angel
If you’re looking within the range of R1 million to R10 million, you’re in the ballpark. Anything less and the idea will seem too easy to copy. Anything more and you’re moving into later-early-stage investment territory, including VCs.
Make sure your business model has an aggressive revenue projection
Angels aim for a return of roughly 10 times their investment within five years. Ideas must be able to get to prototype quickly and have high growth potential.
Communicate
Funders and entrepreneurs often don’t communicate their requirements clearly (or early) enough. As a result, applications often fall through the cracks because of a basic mismatch.
It’s not that simple
Don’t think it’s quick and easy to get funding – in fact it’s a fairly lengthy and rigorous process.
Be exceptional and innovative
Don’t pick copycat industries. The Richard Branson Centre of Entrepreneurship points to popular choices in certain geographies – a no-no. Most entrepreneurs further tend to focus on popular fields like green, bio or tech, but any business with a potential for high growth qualifies.
Don’t pick me-too business models. Advertising revenue is not that compelling on its own.
Does it tweet well?
Have an easily digestible value proposition and core business statement. It must be short and simple as well as compelling.
Got the right help?
Pick the experts to support you. You must have deep industry expertise on your management team, because hiring consulting expertise is not cost-effective.
Be flexible
Bend over backwards to make the relationship work, rather than signal that you might be high maintenance because of a small but somehow insurmountable issue.
Be open
Remember you’re the one who wants something. Don’t expect the investor to jump through hoops, for example sign unnecessary NDAs. Don’t keep any crucial elements of the business plan to yourself either.
Be inclusive
Make a connection beyond just the business relationship – include the investor in your business.
Don’t wait – don’t sit on a goldmine. Act now, perfect it later.
While many entrepreneurs have bad experiences, their experience often indicates they could have done better with the right approach. With the right idea, presented well, your business can get off the ground.
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