Why funders would hate the idea you as an entrepreneur, love!

2012-08-05 16:11

Last week Thursday on the Money Show on 702 Talk Radio and 567 Cape Talk, Bruce Whitfield and I spoke about the persistent problem of securing business funding.

You have a dream; of course you do since you are an entrepreneur. You love your dream, it’s part of you; it is you in many ways. You seek funding and time after time, you don’t get it! Funders hate it. That becomes obvious after the 39th rejection.

Hopefully, along the way, you will meet a funder who likes you and who cares. This funder, if he knows his business, will share some funding wisdom with you. He might point out the following ideas…

Horses for courses

All businesses go through a cycle of development and as they grow, the cycle repeats itself and is never ending. These stages are well known and, well, intuitive and obvious. You start up your business, you build it, and you grow it. If you don’t repeat this process with new strategies, products or customer groups, from growth you will eventually mature and go into decline. Each of these stages has different funding requirements and carries different risks for funders. So make sure you find a funder suited to where your business is in this lifecycle otherwise you will be wasting your time, his time and demonstrating your own inability to measure, match and read timing; a crucial entrepreneurial ability.

Excel

When I meet an entrepreneur and they show me their spread sheet demonstrating how the business is going to grow, I often wonder in amusement whether they really believe their own numbers. They are billionaires on excel! The forecast shows growth in the thousand percentages over 5 years from a starting point that is the result of a modest history. My amusement turns into dismay when I realise that they really believe it and my dismay finally ends in “next, whose next”. You have lost me and probably every other funder before and after me!

Show good growth, support it with your assumptions, make your workings accurate and even if you believe that this is conservative, don’t say anything. Just show good solid modest growth. Don’t overestimate in the hope of getting the cost of money down because you won’t get the money in the first place!

Mr President

When I see a small team and the lead entrepreneur presents a card with the title President, look carefully, very carefully and you will see a look of dismay creep over my face and that of other funders too. President? No, I want you in the business building it, hands on, 16 hours a day! The title is off-putting since I want to see a lead entrepreneur who will be hands-on in the early phase of the businesses growth, a finger on the pulse of every aspect. Mr President, sounds, feels, is aloof for an early stage business!

No man is an island

When I ask who your competitors are, you reply that there are none. You go on to say we are entirely unique. No one out there does what we do. We have more features than anyone else, and so you go on raving about your product or service. The right answer has nothing to do with features and uniqueness. You can be rest assured there are competitors, many of them and I will find them on Google within 2 minutes.

Competition happens in the customers mind. The best product does not win. Look at Madonna probably the top female artist in the worlds earnings rank. There are thousands of women with better voices, better singing capability but can’t touch her on any level. The packaging of Madonna in the minds of her fans is all that counts and that shows in her rankings and her pocket!

About or between

This is my money you are spending and when I ask how much do you need to achieve your forecasted sales, give exact numbers and then round up and allow for a margin of unpredictability. So if you need R3,455,901 say so and show exactly how and when the money will be used and what the impact will be. Round up to R3,5m to neaten up the deal. If you cannot show how much, why, where and when…you are on a losing ticket.

Love is not enough

Loving what you do and delivering a passionate pitch is vital, crucial and very necessary. However, it’s not enough. I have other ideas and wonder if you have my interests at heart too. I want to invest into a business, see it happen and grow and then get out and secure my return. You must, must, must show me how I will secure my return bearing in mind that means a sale of my shares in an equity deal. Is it a sale on the business? If so, who would be the buyers and why would they want it?

I go back to my age-old harp; passion is not enough, and purpose is everything. As an entrepreneur, build your business into an asset of value for your own sake and in the process you will find plenty funding opportunities.

The above are a few ideas that if you put them into practice will secure a good response. They are arguments that are only relevant with private funders or institutions geared to fund entrepreneurs. Banks don’t and can’t fund you outside of normal products such as asset finance, an overdraft or very pricy debtors factoring trade finance. Machines make their decisions and so the above is irrelevant in their world. With private or entrepreneur funders, what you say demonstrated what your intention is and how you say it demonstrates what you are about!

Funding is a lot to do with people relationships, empathy and being straight. It’s a lot to do with being able to demonstrate an understanding of the business building process. If you are struggling to get your funding on board and believe that you have a great business, let’s chat. Otherwise, good luck, get funded and grow your asset of value!

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