In 2008, Renson Kitavi, a now serial investor had this brilliant idea that he thought would revolutionize digital payments in Kenya and generate millions of shillings in revenue. He put everything in writing, meticulously taking into account every possible detail, including the take-off process and projected expansion plan. This, by every means was no simple business entity, but one that would bring a lasting impact to the business community. The business plan ticked all the right boxes, and everything seemed to fall into place, but there was just one unaddressed issue; capital. No bank was willing to fund a start-up whose market viability couldn’t be put to a physical test. He then thought of the next plan, approach some of the high net worth individuals introduced to him through his networks. This, to him came across as the last line defence as he eventually connected with the right people to fund his idea. A couple of meetings later, taking the investors through the workings of his innovation to and the revenue projections, the investors were sold to his idea. Just as Renson was setting himself up for take-off, having found a source of capital, the investors bailed out on him, and as if not enough, went ahead to implement his innovation through other parties.
The take-off process had left Renson with a gaping hole in his pockets and the bailing out left him financially bruised. Worse was to see what was his innovative idea being implemented and changing the business landscape as he struggled to ward off auctioneers. In hindsight, Renson says it was a learning curve with immense lessons to boot. While Renson’s case is not typical of any innovative idea looking for start-up funding, it draws serious lessons on just what it takes to attract the right entities to invest. As a reality, if you are looking for an investor to fund your idea, then you probably will get none. No investor wants to fund an idea. Your typical investor wants hard facts and figures on an existing entity, even if for a month, just start first. One of the toughest litmus tests of business viability an entrepreneur will ever have to face is in interesting strategic investors into their enterprise in order to scale up their business at any level, whether a start-up or one that has gained some significant traction. A significant amount of time and effort will be expended in building a professional pitch appealing enough to persuade potential investors of the existing but uncharted potential in the business; and while investors may come in many forms, with different demands and outlooks, there are certain basics that may just need to be up-to par before embarking on the journey towards attracting them. So, what knowledge and information would be essential to pull across a high impact pitch to a strategic investor?
The product (Problem vs solution)
Critical to any investor pitch are facts about the problem in the market and the solution the business provides, the demand for the product in the market and the business strategic positioning thereof. The problem question ought to be well researched, founded on clear data and leaving absolutely no room for guesswork. This means a potential investor is most charmed by the market dynamics and how the business is strategically placed to safeguard its market. Records showing traction and demand for your product come in handy here. You will definitely have to invest in proper, professional bookkeeping and up-to standard sales records. For a start-up, the angel investor might want to have a solid plan on one’s target market and how they intend to enter that market and stay afloat till break-even.
Risks and risk mitigation plan
Risk is a definite consideration in any business venture. A plan without the risk element does not reflect the true picture of the business venture. An investor would be very interested in the risks associated with the product sustainability in the market and mitigation measures thereof. These risks could either be internal or external. Internal risks typically emanate from within the organization e.g, the risk of high employee turnover and these are easy to plan for and mitigate. External risks are sometimes difficult to anticipate and plan for, e.g a shift in government policy might easily lead to extreme losses, sometimes necessitating a complete overhaul of the business model. This information will inform a fair evaluation of the risk profile of the business and whether the investor has a risk appetite sufficient to absorb the risk.
The current cash-flow and cash-flow projections.
When all is said and done, how do your books look like? The angel investor’s ultimate interest in your business is the profit. Do your current records look healthy enough to reflect business sustainability? What are your sales and cash-flow projections? Do they look captivating enough for an investor? Are they founded on reality or is it just a conjecture of imagination? Business finances and cash-flows are critical to survival of the business. What is your expansion plan and how does that blend with your current cash-flows. Your expansion plan typically reflects a greater need in the market base, product diversification or innovation.
Finally, your capacity to steer the business to sustainable profitability will definitely come to count. Do you have systems and structures in place for professionalism? What is your staff profile like? Is your individual drive solid (read vision and mission) enough to charm a potential investor?