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In July 2021, Mineworkers Investment Company (MIC) launched MIC Khulisani Ventures, a R150 million early-stage investment vehicle targeting Black-endemic innovative, high growth potential businesses in S Africa. Having received over 700 applications, with 141 of those meeting the vetting criteria, MIC ultimately narrowed down the applications to a list of top ten finalists, who were invited to pitch their funding request to a console of business experts. With the beginning two investees at present successfully funded through MIC Khulisani Ventures, Thato Ntseare offers some advice for other entrant start-ups on how to set up your showtime-up business organisation for success in attracting investors.

Thato Ntseare, impact investment manager at MIC

Thato Ntseare, affect investment manager at MIC

The idea of venture capital involves investing in early-stage businesses that are premised on existence innovative in one form or another, for example by developing bespoke technology, or making utilize of existing technology in a unique manner, or uncovering new markets past creating demand where there once was none

It's important to realise that when a concern is nonetheless young, it can be difficult to evaluate. Despite the growth experienced, there remain many unknowns about the hereafter prospects of the business organization. The founders of young businesses are protective over them and often place high value on them based on their potential. All the same, founders need to understand that potential investors will come in, critique and value their business concern based on what it is currently. If they are interested and believe in the vision, they will invest in the business in exchange for percent ownership of the business.

When small fish speak to bigger fish…

Early-stage start-ups (usually post revenue, but pre-profit) present a higher risk to VC investors. Every bit a result, the entrepreneur usually must be prepared to offer a college disinterestedness stake for a given funding amount (or less funding). Investors must work on the information they have at mitt and what they tin can reliably test, rather than what could potentially come up to fruition in the future. Therefore, there may be an initial mismatch betwixt the desired amount of investment capital when compared to the amount of money that the burgeoning business organization is really able to attract.

It is fair to say that South African investors are typically more conservative than many of their peers elsewhere. Therefore, a young business requesting venture capital letter must be able to testify that it has revenue traction, in other words it needs to be able to prove that it can capture customers monthly and grow the customer base at an accelerating rate.

In short: If an investor decides to give you the investment capital you crave, they need to believe that yous take a market, and that you can execute on it.

Why now?

It is also important for the small business to exist able to requite the investor condolement around the question of: 'Why now?' – significant: What is it about the thought that will work at this precise moment?

For example, inquire yourself whether online food commitment services could have operated profitably 15 years ago? What kind devices did we accept? How comfortable were we as society with online payments? How fast were our cyberspace speeds to cater for efficient service delivery?

This is an first-class example of how critical the 'Why now?' question is: it provides a platform for the immature business organisation founder to bear witness their own beliefs to their potential investors. While at that place is certainly an element of luck and timing, being able to reply this question allows the founder to show the investor that they understand the market they are trying to enter, and that they are enlightened of both local and global trends and where market forces are going.

A comfortable response to the 'Why now?' shows the potential investor that the founder has applied their listen to the manufacture and shows critical thinking. It also signals to the investor that the founder has their finger on the pulse of their industry and tin place far before whether the business needs to pin.

The inevitable admin

Administration effectually the new concern is especially important. Without information and information, the investor is unable to reliably understand where the business is headed, and how to grow it into the future. The founder must be able to show fundamental operation statistics, and the potential investor will base of operations their critical analysis of the business on these (and other) specific operational metrics.

It is imperative to be able to manage the young business concern well, and this includes accounting software. Fortunately, a variety of relatively affordable bookkeeping solutions are available. For a potential investor in an early-stage business, the primary focus is effectually the revenue growth: this shows that the business has customers who take bought into your solution. If it is growing, this means that the business organisation is addressing a market place, the size of which may nevertheless need to be adamant but it is a start.

With regards to income statements, beingness profitable is not too important particularly for a outset-up, equally the founder reinvests all revenue back into the business to grow it. Flat growth, withal with increasing costs, represents a red flag.

From a rest sail perspective, information technology will be dependent on the blazon of business. However, every bit a quick rule of thumb here, investors don't like to run across a complicated shareholder list with a variety of dissimilar instruments: it makes it more than difficult to determine the ultimate shareholding of the investor, and many complicated instruments increase the hazard that information technology may be diluted in future. As they say: too many cooks spoil the broth!

Investors volition also not want to see likewise many loans. Given the early-phase nature of the business information technology is likely loans were obtained as growth majuscule, merely often given how risky and early these businesses are these loans would be at high interest rates making them very expensive. Expensive debt burdens a growing concern and the terms, depending on what they are can deter potential investment.

Maintaining necessary assistants systems and processes is very important as information technology boosts investor trust and gives confidence that any investment will be administered effectively.

Research the required information

It is imperative to have an 'investor information room', meaning a storage infinite, preferably digital, where companies store information relevant to due diligences and other valuable data. This provides the potential investor with confidence that the business is well managed and reduces the time to corroborate investment as the information is readily available.

From the perspective of MIC Khulisani Ventures, whenever we are near to embark on a transaction, we ask the direction to compile information such as marketing plans, addressable market size, competitor analysis, fiscal statements, financial forecasts, direction accounts, biographies of the founders and so on. Information technology provides us with evidence that the founder has not only taken the fourth dimension to understand and disseminate their market but also answered the 'Why now?' while building an efficient and robust administrative capability to relay the information.

Aesthetically pleasing

I advise whatever business organisation to accept a professional website that is functional, looks professional, offers a certain corporeality of information, and inspires confidence. You need to brand sure your solution looks the part, even if it is not 100% perfect.

Moving forward with African solutions

When Khulisani Investment Ventures was commencement launched, to extend MIC's cadre business of late stage investing and expand our investing mandate into the VC infinite, we were extremely pleased at the high number of applications we received, equally well as the calibre of the applications.

With the programme being aimed at high-growth potential, innovative Black-owned businesses, it is certainly fair to say that there is significant innovation from Blackness-led businesses, and we want to give them a chance.

Nosotros are excited at beingness part of the groundswell to create African solutions for our people that are globally scalable and look forwards to funding and growing more starting time-ups in the time to come.