Access to funding is often cited as the greatest hurdle to starting a business. However, contrary to many entrepreneurs’ belief, there are various institutions with funding available which too often isn’t tactically tapped into.
That is according to David Morobe, regional general manager at South African risk finance firm Business Partners, who says there are numerous investors and financiers eager to invest in viable innovative business concepts.
Unfortunately, many entrepreneurs grapple to successfully find the right investor for their specific business model, or do not pitch their business to its best potential. Morobe says too often entrepreneurs approach a financier without reviewing its funding requirements and whether they are in fact the best fit for their business.
“For instance, an entrepreneur requirement may be outside funding threshold, however following this feedback an entrepreneur often just adjusts the application in order to fall within criteria communicated,” he says.
“This immediately places doubt in an investor’s mind as it becomes evident that the entrepreneur hasn’t fully planned how this funding will be utilised in the business to address the authentic funding needs.”
There are four key components in a business pitch that investors tend to look out for, says Morobe.
“What is the money needed for, is it a short-term or long-term need, what can the owner give up or provide for the capital, and lastly what rate of return can be expected from the success of the business,” he says.
Entrepreneurs also need to lay out exactly where their business is at now, as this provides the investor with the opportunity to see the background and business experience of both the entrepreneur and support team, and the current health of the business.
“The next point is what the entrepreneur wants to do. What is the core product or service being offered by the business, how unique is it compared to competitors, is there a demonstrated need for the product or service; and is there sufficient market potential to make the investment worthwhile,” says Morobe.
“Lastly, the entrepreneur should explain the purpose of the funding applied for. Investors need a clear, quantified idea of what the money will be used for, as well as realistic financial projections that indicate that the business veers towards being cash flow positive. The investors’ thinking is around whether they can make the best return on the investment within the agreed upon time frames – a clear exit strategy.”
Morobe warns entrepreneurs against falling into the trap of including too much detail during the business pitch.
“Often entrepreneurs become so caught up in their passion for their business, that the pitch becomes littered with too much technical information which can disinterest the investor,” he says.
“Such intricate information belongs in their business plan, which will be provided post pitch. The pitch presentation should always remain concise and contain only the essential elements.”
Entrepreneurs need to conduct thorough research on each individual funder before meeting them to ensure that the business matches the specific criteria of the investor, speaks to their investment preferences, and that the proposed funding agreement ensures a fair deal for both the entrepreneur and investor. Such research will improve the success of an application for finance.
“Each investor or financier will have a precise idea of the type of business or idea that would attract their interest. It is, therefore, imperative that entrepreneurs tap into this and ‘play the right field’ to ensure a successful application for finance,” says Morobe.
“Investors do not only invest their time and money into a business, they also invest in the entrepreneur behind the business – and it is for this reason that the partnership between the two parties should be a good match.”