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GFA Opinion: Reasons why investors will not invest in your start-up (For the African Entrepreneur) Part 2 

Last week we looked into why investors will not invest in your start-up, Part 1, and this week we will dive in a little deeper. 

Trust

For business owners, a lack of trust is the biggest expense. It may take years for a manager or an executive to develop the trust of his or her employees, but there are only moments to lose.  

Investors expect well-communicated and well-predicted performance year over year. Whether it’s a newly minted start-up or a Fortune 100 company, meeting these expectations is crucial regardless of the size of the organization. 

Fun Facts about Trust in Business: South Africa  

It should be noted that in South Africa, people do not instinctively trust each other upon first meeting one another. Therefore, it is important that you establish healthy business relationships with South Africans in order to build trust. 

As trust is often an issue in South Africa, people tend to speak in a very direct, honest way during business negotiations. Any ambiguity or vagueness on your behalf may be interpreted as a sign of untrustworthiness, dishonesty, or lack of commitment. Furthermore, contracts and terms should be explicitly detailed to assure them that the deal is transparent. 

Product. 

At times, investors do not want to invest because your company is moving too slowly in releasing the product or service. The reasons vary: from lack of confidence or trying to reach unattainable perfectionist standards. The longer it takes to launch your product, the longer it takes for investors to see a return. Remember, there’s nothing wrong with releasing version 1.0 and making the appropriate adjustments as time goes on. 

Inadequate knowledge of the industry. 

As an entrepreneur, if you: 

  1. Don’t seem to be familiar with the business sector.  
  1. Don’t have any experience in a related area. 
  1. Don’t have any other team members with experience. 

That would send a strong message to investors that you have no knowledge relevant to potential customers or any idea of how to improve the industry. 

Fun Facts about the construction industry: Kenya  

According to Business Monitor International, the Kenyan construction market is expected to record 8.5% growth in 2017 and remain a growth outperformer in Sub-Saharan Africa (SSA) until 2024. Underpinning this positive outlook is the diversity of opportunities in the market, particularly in transport and power infrastructure and commercial construction. 
 

Opportunities in the construction market would include the supply of new and used construction equipment, such as light and heavy earth-moving equipment, loaders, crawlers, tippers, excavators’ compactors, graders, and quarry mining equipment, low-cost road maintenance options, low-cost housing construction technology, and development and planning services. It is important to note that Kenya uses right-hand drive vehicles, so machines with controls in the centre are better sellers. Other opportunities also exist for consultancy and planning services. However, knowledge of construction is necessary in order to correctly set up your company in the right position in the market. 

Fail To Foresee the Future. 

Private equity firms scrutinise new entrepreneurs at a moderate level. Primarily, a start-up’s potential is released from the bright vision it carries. So, besides expanding the business reach, there should be set goals that will solidify a start-up’s profile.  

If an entrepreneur does not set goals for the next ten years, it appears unwise to invest money in the venture. Coming up with a unique or disruptive idea is not imperative; it is vital as to how a business owner executes the plan and moulds an emerging, nascent company out of it. 

Entrepreneurs who lose sight of their vision or become distracted by the money factor fail to lay solid foundations for their businesses. 

Investors expect organisations to be adaptable, responding to changes in the marketplace through innovative products or services that are driven by technology and a reaction to new business models. Investors want to see that an organisation is using technology wisely to sustain performance today, but also leverages it for future growth. 

Improper Cash Flows. 

Cash flows are excellent for showcasing the financial soundness of the business. Entrepreneurs must present a true picture of their start-up when submitting cash flow reports to major private equity firms. Manipulating the figures or acting like a pompous businessman does not help the start-up owner in any way.  

Investors are veterans in the industry and, thus, possess the expertise to foresee the future course of any business. Hence, business owners should demonstrate that they are necessary.  

If you would like to know more about how to keep proper cash flows, enrol in our Investor Readiness Course by Remsana. 

You’re oblivious. 

Many of the above issues probably apply to you and you haven’t realised it, which is a serious problem. Dealing with entrepreneurs who can’t see flaws and are clueless about trying to overcome them is very difficult, especially when working with an investor. Remember, no one is perfect. Accept your weaknesses and work on correcting them. 

Oblivious to Obvious Business Frustrations: The story of Natasha the Zambian entrepreneur  

I was flabbergasted, lately, by a phone conversation with Natasha. She’s a business owner from Lusaka. We had been corresponding concerning process issues in her company. Generally, her issues were typical and obvious, just everyday business chaos that affects small-scale hair salon business owners in Zambia. We discussed the same old underlying reasons for the business frustrations of every oblivious business owner. 

However, Natasha really surprised me, because she didn’t seem oblivious at all! In fact, she agreed wholeheartedly, as we shared solutions to the clear pitfalls, tripping her up. We talked about quality control systems for expensive human hair and wigs from China or Vietnam, daily routine checklists for all the hair driers, hair straighteners, and other equipment, project tracking and causes of errors, etc. 

During some of our preliminary conversations, Natasha told me that a certain software company was hot on her trail with cold calls, business ads, and numerous software demonstrations trying to sell their software. However, according to Natasha, they offered none of the solutions to fix the main frustrations in her company. Furthermore, it was too expensive for her budget. Natasha said the software company lacked any systems/solutions to address the frustrations Natasha and I had discussed, which, from my view, seemed obvious to her. Therefore, I assumed she knew what kind of software she needed to fix her issues. 

I hope this helps. Have a great day ahead.  

Source
CultureAtlasKenya

Nichole Manhire

Is the media and brand manager at GFA News. She works very closely with editors and podcasters that contribute to telling the African business success story. For marketing and advertising send Nichole an email: nichole@getfundedafrica.com

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