Top tips for a tech start-up seeking an angel investor

By Wesley Lynch, Realmdigital CEO

Entrepreneurial ventures find it notoriously tough to get funding in South Africa. But is it really that hard? More and more commentators suggest that this is a misconception.


Though almost every entrepreneur encounters some obstacles, here's some guidance on how to navigate them.


First, pick the right funder 

Venture capital (VC), growth capital and angel investors are the early-stage funding mechanisms of choice. They play their parts at different stages in the maturity of a start-up business, and accept varying degrees of risk. Of these, angel investors are the easiest to convince. They invest smaller sums at the very early pre-commercialisation stages of the business, when activities are still relatively low-cost and the venture doesn't yet have a proven track record.

 

Couch the proposal in terms acceptable to an angel 

If you're looking for support within the range of R1 million to R10 million, you're in the ballpark. Anything less and the idea will seem too easy to copy. Anything more and you’re moving into later-early-stage investment territory, including VCs. And make sure your business model has an aggressive revenue projection. Angels aim for a return of roughly 10 times their investment within five years. Ideas must be able to get to prototype quickly and have high growth potential.

 

Communicate 

Funders and entrepreneurs often don't communicate their requirements clearly (or early) enough. As a result, applications often fall through the cracks because of a basic mismatch. Have clearly defined goals and a crisp definition of the product.


Be exceptional and innovative 

Don't pick copycat industries. The Richard Branson Centre of Entrepreneurship points to popular choices in certain geographies, but mere imitation is a no-no. Most entrepreneurs tend to focus on popular fields like green, bio or tech, but any business with a potential for high growth qualifies for investment. So don't pick me-too business models. Advertising revenue is not that compelling on its own.


But it's not that simple

Don’t think it's quick and easy to get funding - in fact it's a fairly lengthy and above all rigorous process.


Does it tweet well? 

Have an easily digestible value proposition and core business statement. It must be short and simple as well as compelling.


Got the right help? 

Pick the experts to support you and integrate them into your start-up. You must have deep industry expertise on your management team, because hiring consulting expertise is not cost-effective.


Be flexible

Bend over backwards to make the relationship with your angel work, rather than signalling that you might be high maintenance by making a small issue insurmountable.


Be open 

Remember, you're the one who wants something. Don't expect the investor to jump through hoops, for example by signing unnecessary NDAs. Don't keep any crucial elements of the business plan to yourself either.


Be inclusive

Connect with your investor beyond just the business relationship – include the investor in your business. 


Don't wait

Don't sit on a goldmine. Act now, perfect it later.  Many entrepreneurs have bad experiences, but often they could have done better with the right approach. With the right idea, presented well with the right attitude and dynamism, your business can get off the ground.

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Comment by Shaun Lindbergh on November 22, 2011 at 18:13

Juanita, where was the discussion? I'd really like to get notice of future talks. 

Comment by Juanita Jacobs on November 22, 2011 at 11:40

Shaun, I was at a panel discussion around funding last week and the question of crowdfunding came up.  Apparently the very nature of it contravenes various South African laws (unfortunately the panel expert didn't embroider on which how so or which laws and time ran out) He did say though that it is only a matter of time until those issues are overcome and that crowdfunding is definately on the horizan as an acceptable funding practice in SA. 

Comment by Michael Evans on November 17, 2011 at 11:19

But isn't Richard Branson basically a copycat?

And Advertising revenue is pretty compelling on its own when you are Google.

Comment by Shaun Lindbergh on November 16, 2011 at 14:06

What's happening with crowdfunding in South Africa?

The US seems to be making great strides with its legislative framework. Are we likely to follow its example? 

I see quite a few SA start-ups using crowdfunding to access some early cash. 

Any success stories here on SC?

 

Comment by Brendan Hughes on November 16, 2011 at 12:24

Thanks for a good post Wesley. "Remember, you're the one who wants something". Just because you ask someone to dance, doesn't mean they weren't wanting to be asked..! Smart funders know what they're looking for and while I agree with not getting caught up in too much paper too soon, in my opinion, too many early stage entrepreneurs adopt a cap-in-hand approach to fund raising and give away too much, too soon, during the first contracting phase. If a funder does not make you feel comfortable, either they're the wrong funder or you have the wrong plan, both require a re-think. There is a delicate balance to be struck in the funder-entrepreneur dynamic and striking it is fundamental to the long term success of a new venture.

Comment by Riaan Nolan on November 16, 2011 at 11:34

Good all round advice, thank you, nice one ! 

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