There exist various opportunities for an entrepreneur to raise funds for their business. Most entrepreneur focus on a limited set of options and iterations.The fund raising opportunities available are:
Friends and Family
This option may be a first choice for many but it carries a hidden cost assuming that they are sufficiently liquid to support you. The question to ask yourself if you choose to go this way is…do you want a brother or a creditor, relationships can get tricky.
you have an idea and you manage to sell your idea and vision to a person with deep pockets who is feeling philanthropic or actually believes in your idea. You have to remember as soon as you take on other peoples money, you become accountable not only to yourself but to the third-party. This results in pressure that may stifle creativity and innovation on your product or service. If you do get the opportunity to connect with an angel investors…manage expectations from the onset.
Planes have been landing from the US and Europe with teams hunting for the next big African story, riding off the global buzz on the success of services such as Mpesa. Local venture capital firms have also been established poised to identify and ride off innovative ideas from this and other African markets.
The thing about venture capital is that they hardly ever share your long term goals. Their objective is to get you public or in the shortest time possible and cash out. Public in the Kenyan environment may mean sexy…these guys will get you sexy and alluring by getting you profitable, making sure your an industry leader / contender. This will get you suitor…and when the suitors come calling, they sell and move on o the next idea. Their milestone is financial and pegged on an IPO or sale to other entity, and that may not necessarily be in your long-term interest. If you choose to go this way, you need to sell them what they want to hear. Show them how they get to exist, show them both the internal and market rate of return. 8 times out of 10, you are on your own in terms of long term vision with venture capital.
Private equity: this may be a no go zone for a startup unless daddy has some assets stashed away somewhere. Private equity will extend financing to a entrepreneur if they have access to asset that can be liquidated. If yours is an already established business, this may be a way to go as you can leverage your existing assets. Point to note for techpreneurs …I have learnt that you cannot use your servers as leverage. For some reason your 10 million bob infrastructure may count for nothing 🙁
Raising funds from hedge funds requires one to be publicly listed
Asset based lending
bring your title deed or car log book…enough said.
Less than 40 percent of tech ventures go beyond year 3 of operation, so if your past that point, you must be doing something right…or still hanging on by the skin of your teeth. Statistics from New Market Technology’s as given by their CEO –Philip Verges shows that 4 times the charm. Philip has worked with entrepreneurs whose ventures have not gone on to be as successful as they were projected, but on their fourth ventures…they blew up. This just goes to show that you need some thick skin when going into business as things hardly go the way they were outlined in the business plan.
For an entrepreneur looking to raise capital, one sure fire way is to use capital pegged on certain milestones and not long term success. This means that if you have a this great idea for a mobile application or kick-ass SAAS platform that will do wonders, you would raise say 0.75 million bob to get you to pilot phase with a focus group testing the app or service. With milestone one having been met, you then source for funds to take you live once you have achieved proof of concept in the market. This may be from the same investor or a different set altogether. This will give investor number one a chance to cash out or come along for the long haul. In a nutshell seek to fund the next investor milestone.
From Startup to IPO
Did you know that as a startup you can go straight to IPO to raise capital? Yes, you can….but at the exchange in the US and London. Philip Verges and his team are in the country and have looked at businesses that would benefit from their sort of expertise in this flavor of financing. I can explain more on the details of the micro cap public markets (aka the penny stock market), if you email me expressing interest.
The Milestone Fundraising seminar was organized by Bwana Paul Kukubo, CEO – ICT Board on Wednesday 4th November and held at the Communication Commission of Kenya ( CCK ) offices where a cross-section of entrepreneurs from Kenya’s tech scene were invited.
Always a pleasure to meet the usual suspects 🙂 Also touched base with Ernst Jura – Head of Strategy at Collabmed who are looking at online medical practice management. Promised to fly by their offices next week and discover more.