Surviving the Venture Capital (VC) Winter
Becoming creative will keep founders warm.
Brrr. . . the VC Winter has been around for a minute! And it seems to overstay its welcome.
Unlike in Game of Thrones, founders received little or no warning in order to fortify themselves and their businesses sufficiently against the coming VC Winter; instead, it happened somewhat suddenly.
And if the figures from Q1 are anything to go by–funding fell by 57%-it looks like 2023 could be a stiff year for African start-up founders.
Unfortunately, gloomy activities are already part of the ecosystem’s daily news:
- start-ups are closing shop one after the other in different corners of the continent due to the inability to raise funds – Nopearide & Zumi (Kenya), Redbird (Ghana), Lazerpay (Nigeria), etc.
- the tech layoffs which began with the biggest names in the world (Amazon, Disney, Google, Lyft, Meta, Microsoft, Twitter, Yahoo, Zoom, etc) have encroached into the African start-up space as well (54gene, Chipper Cash, Jumia, Kuda, Moove, OnePipe, Viamo, etc).
- the closure of Silicon Valley Bank compounded the issue for founders and VCs alike.
Now that we’ve written the bad news, here’s some good news.
One founder & CEO, Alexej Pilovsky, has stated in a LinkedIn post: “[Founders] You don’t need to raise from VCs!”
According to him, “There are thousands of non-VC investors out there who are usually smaller tickets and take a bit more time, but money is money.”
He has put together a fundraising playbook that founders can use for seeking non-VC funding sources, some of which he had used to “optimise the fundraising process.” Thus, erecting a wall to hinder a lengthy VC winter.
His post garnered over 14, 000 comments and 300 reposts, with a good number of respondents agreeing with his argument.
And about a third of the 15 assorted items listed in the resource are environment specific to Pilovsky; while the others are universally common to founders everywhere.
Below, we highlight three for the African market in a bid to thwart what seems like a long VC winter.
Raising Funds from Non-VC Investors
Family offices: The first on our list is the family office. A family office is a private wealth management advisory firm that serves ultra-high-net-worth individuals (HNWI). It differs from traditional wealth management shops because it offers a total solution to managing the financial and investment needs of an affluent individual or family.
One responsibility of a family office is investment management, and this could include investment portfolio management, commercial real estate purchase, sale, and property management, private equity deals, hedge fund investments, and venture capital investments.
Some examples of African family offices include TY Danjuma Family Office (Nigeria), Heirs Holdings (Nigeria), Oppenheimer Generations (South Africa), Dangote Family Office (Nigeria), Steyn Family Office (South Africa), Man Capital (Egypt), TenGen Family Office (Nigeria), Eric Ellerine Trust (Pty) Limited (South Africa), Singularity Investments (Nigeria), and Selous Family Office (Tanzania).
Female angels: In recent times, they have been a proliferation of female investors, both angels and venture capitalists, single or in a group; some of whom have revealed that they were in the business to fund fellow female-led start-ups and founders. This claim might not be unconnected to the appallingly low percentage (about 7%?) of funding received by female founders or co-led start-ups as compared to the men in the ecosystem.
While priority will be given to their women in business when it comes to funding, there may be a consideration for their male counterparts after satisfying their raison d’être.
The following organizations come to mind, and they are a mix of angels and venture capital companies. Rising Tide Africa, FirstCheck Africa, Dazzle Angels, Ingressive Capital, Alitheia Capital, Aruwa Capital Management,
Cold introduction/email: This is the online version of the door-to-door salesperson approach. Sometimes the door opens to a favourable deal on the other side. Other times, the salesperson jumps out of the way, just in time, not to have the door slammed in their face. And proceeds to the next available door, the next possible sale.
The cold introduction/email removes the physical from the pitch. No doors. The internet separates the founder from a potential investor. The only sound would be the click to indicate that the email was sent. There’s no observing the expression of the receiver to the words written by the sender. Interested or bored? And when a reply arrives, if any, it would tell the founder if it were a dead-end or a potential. Whatever the outcome, move on to the next door.
LinkedIn is one platform where titles on profiles can help founders pitch cold introductions.
Founders going this route and others outlined in Pilovsky’s post should remember this one comment out of the many he received: “. . .there are many other options for funding besides VCs. In fact, seeking non-VC investors can be a great way to diversify your funding sources and potentially avoid some challenges that come with raising from traditional venture capitalists. One thing to keep in mind is that raising from non-VC investors may require a different approach than raising from VCs. These investors may have different expectations, and it’s important to be clear about what you are offering and what you are looking for in return. Overall, I think that exploring non-VC funding options is a smart move for many companies.”
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