By Hanan Abdel Meguid, CEO of Kamelizer and member of the 4Afrika Advisory Council
Last month, I had the very exciting opportunity of participating in a live DEMO Africa Twitter party. Together with Harry Hare, Amrote Abdella and Collins Onuegbu (you can see their profiles here), we gathered to share our thoughts on: How to pitch to investors and raise money for your startup.
For those of you who missed it, we’ve captured some of the highlights below. For a full look at the conversation and insights shared, you can search the #PitchDEMO hashtag on Twitter.
Where can my startup look for funding?
“The best source of startup funding, in my opinion, is a paying customer” – Harry Hare
For first level funding, the obvious starting place is friends and family. Next to that, your best first professional investors include: Angel investors, accelerators, microfinance institutions and banks. Remember to always choose what makes the most sense for your business.
Once your business has a bit of a track record and is looking to scale, your next level of funding can come from venture capitalists (VC) and private equities (PE). Which means, as Collins says, you should never approach a VC or PE with just a basic idea or prototype.
How can I approach an investor?
“It’s good to pitch your startup to potential investors. But also understand what they can offer you before you accept their funding” – Amrote Abdella
Research. Research. Research. As Harry mentions, most investors stick to a set sector or industry. Find out who is investing in what businesses and if your business is aligned to their motivation.
It’s also good to talk to everyone and anyone. The more you reach out and talk, the more you understand concerns that you need to address. This helps you to sharpen your pitch and ensure you cover all the needs of your investor, when you do get a meeting with them.
What is the most important thing an investor looks for?
“Great idea. Great execution. Ability to scale” – Collins Onuegbu
It’s important to remember that, in the entrepreneurial world, there are lots of new business ideas popping up every day. However, few entrepreneurs execute these ideas properly. Do this and you investors will notice you. It will also set your apart from fellow entrepreneurs who have similar ideas.
Other things investors look for include: Clear market understanding, forecast of the business, passion and their return. Remember to be clear on how they exit and make their money.
Investors also look at your personality. At early stage, I have found that they evaluate 80% team and 20% idea. As an investor myself, I am always interested in a capable team who can do it with or without my money.
What financial figures should I include in my pitch?
“Finance is the heartbeat of a venture. Measure everything so you can improve it” – Harry Hare
As a startup, you should begin with the basics: Pricing, cost price, sales price of your product, gross profit etc. Harry suggests including: Cost to acquire a customer, average revenue per customer, lifetime value of a typical customer, and monthly recurring revenue.
As you develop, you will start to understand the more complex performance indicators that investors look for. Some of these relate to profitability and how fast the investor can get his money back. Just be aware that at various fund raising levels, investors may be interested in different things.
How can I make my pitch a winning one?
“Know your audience, customise your pitch and leave space for questions – dialogue is key” – Hanan Abdel-Meguid
To stand out from the crowd, turn your pitch into a compelling story, as people relate with stories easily. Be clear on your ask and justify what you want from your investor. As Collins points out, due to time pressure, many startups finish their pitches without doing this, which can be detrimental. Factor in enough time for everything.
Finally, and if you’re feeling brave, Amrote has found that saying “I don’t need money” always captures interest!
Congratulations to all the 30 startups who pitched at this year’s DEMO Africa event – particularly SimbaPay, winner of DEMO Africa 2015. We look forward to seeing even more innovations at DEMO Africa 2016.