African startups regularly decry the lack of funding available to them, and the long, difficult journey of persuading venture capitalists on the continent to invest.
But what pet peeves do Africa-based VC firms have about tech entrepreneurs? Asked that question while taking part in a panel at the annual AfricaCom event in Cape Town last week, a handful of investors didn’t hold back.
A couple expressed frustration at a lack of thoughtfulness from African entrepreneurs when it comes to their business and raising money. Ian Lessem, managing partner of South African investment and advisory firm HAVAÍC, said raising money from a VC firm was not like raising “family, friends, fools” money.
“We all have terms. The business really needs to be a super-normal business to attract VC funding. Lots of first time entrepreneurs don’t take the time to put together their thoughts,” he said.
“If you want to attract VC funding from the US you must understand that companies involved are servicing much bigger businesses serving much bigger markets. If you have no plans to scale outside of South Africa, you would be naive to think a US VC would be interested.”
Hetal Patel, head of venture growth at Mercy Corps Ventures, agreed with this view.
“People tend to not be so thoughtful about the investment process. But when you are talking to a VC you need to be thoughtful,” he said, adding that even the most innovative tech solutions needed entrepreneurs to have developed a good “ground game” when it comes to things like distribution.
Entrepreneurs also have the tendency to be over-optimistic and unrealistic about the future growth of their businesses, investors said.
“It is quite common that entrepreneurs are over-optimistic. You need to be realistic. Often their projections need to be tempered,” said Grant Rock, partner at HAVAÍC.
Patel said though he obviously wanted entrepreneurs that are thinking big, they still needed to be grounded in reality.
“I have seen so many decks where the hockey stick in two to five years is not realistic,” he said.
“Maybe that is not the entrepreneur’s fault. We are bringing Silicon Valley VC mentality to Africa. Maybe the hockey stick doesn’t happen in year two, it happens in year seven. That’s OK.”
Others said they did not appreciate entrepreneurs being unprepared for meetings, not recognising the value investors can add to a business in addition to simply providing capital, and not knowing their market.
“If an entrepreneur walks into my office and asks who I am. I have prepared for the meeting, why haven’t you? If you don’t prepare for a meeting with a potential investor, it is sloppy. I have lost interest. Also, if all the entrepreneur cares about is money. If the entrepreneur doesn’t understand that money is just an enabler, I’m not interested,” said Andrea Böhmert, co-managing partner of South African VC firm Knife Capital.
“People come to me and say they are playing in whatever market, but when we really drill down, their value proposition puts them in a different market. You need to be able to define your value proposition. And then based on that your market. And then understand your numbers and how big that market is.”
Rock agrees with this view.
“Investors are good at doing their homework and understanding because we see so much. It is crucial an entrepreneur understands what market they are going after,” he said.
Lack of integrity is also a turn-off when it comes to investing in an entrepreneurs, with investors all knowing and talking to each other and therefore easily able to find out if a startup is playing the field in an unethical way.
“You don’t want to be offering different terms to different investors. We have had a couple of times when entrepreneurs have played us off against other VCs. Of the companies where we have had that negative experience, they actually aren’t doing that well. And it is because of the mentality where they think all money is the same. Instead of playing us off against each other, they should be thinking where we can add value,” Lessem said.
His colleague Rock agreed.
“Integrity is very important. Values are key. We take time when we are investing. We get to know the entrepreneur, trust their model and values. We don’t rush. It is going to be a long journey together,” he said.