Funding Success in Africa: Lessons from Leading Tech Investor Zachariah George
In this power-packed blog post, we've teamed up with leading tech angel investor, Zachariah George, to share invaluable insights on the top four pitfalls to avoid when seeking investment. Get ready to propel your business forward with practical advice and actionable steps that will make a real impact. Let's dive in and secure the funding you need for exponential growth!
Pitfall 1: Lack of Skin in the Game
When it comes to seeking investment, one of the most critical factors highlighted by Zachariah George is having "skin in the game." In other words, founders must demonstrate their commitment and belief in their own venture before expecting others to invest in it.
This means exhausting every possible source of capital, such as personal funds, contributions from friends and family, and any other available resources, to invest in the business. For instance, one founder, invested in by Zachariah, mortgaged his house, exemplifying his genuine passion for the business beyond external funding.
Investors are more likely to support and trust founders who have taken substantial risks themselves and demonstrated their commitment to the future success of their business.
Pitfall 2: Founders Paying Themselves Excessive Salaries
Zachariah believes in putting the growth of the business first, cautioning against founders paying themselves extravagant salaries. As a founder, it's crucial to prioritise the success of your venture over personal financial gains.
Here are some essential points to remember when it comes to founders' salaries:
- Strategic Compensation: Opt for a modest salary, redirecting profits to fuel business growth.
- Equity Alignment: By paying yourself less, you earn more equity, aligning your interests with the company's success.
- Long-Term Vision: Focus on building lasting business value rather than short-term personal gains.
- Demonstrate Dedication: Demonstrating commitment to your venture enhances trust with potential investors.
- Balanced Approach: Strike a harmonious balance between personal needs and reinvesting in the company.
Remember, as a founder, your success is intrinsically tied to the growth and impact of your business.
Pitfall 3: Not Clearly Defining the Use of Funds
When seeking investment, it is vital to have a clear plan for the use of funds. Zachariah George stresses the importance of knowing why you are seeking capital and having a well-defined strategy for its allocation.
NOTE: VCs and Angel Investors are primarily interested in funding growth.
Keep the following in mind:
- Asset Acquisition: If your aim is to raise funds for purchasing assets, securing working capital, or expanding your physical space, consider obtaining a loan as debt is the most cost-effective form of capital for these purposes.
- Research Funding: If you need funds for research and development, approach the government or specialised organisations that fund R&D initiatives.
- Fuel Growth: To fund your business growth, expansion, or product development, approach VC or angel investors, as they are keen on supporting ventures with clear growth potential.
When approaching investors:
- Have a well-defined plan for the funds and clearly communicate your goals.
- Demonstrate how the capital will take your business to the next level and outline achievable milestones.
- Show your commitment and dedication to achieving the planned outcomes.
- Highlight the potential for significant growth and scalability in your business.
By adhering to these practical points, you will be well-prepared to approach VC and angel investors with confidence and increase your chances of securing the funding you need to drive your business towards success.
Pitfall 4: Lack of Research on Investors
Understanding your potential investors is paramount to securing funding for your business. Take the time to delve into who they are and what they typically invest in. Tailoring your pitch accordingly can make a world of difference.
Here's what to research about potential investors:
- Geographic Areas: Identify where the investors focus their investments – locally, regionally, or internationally.
- Industries: Determine which industries they specialize in, as their preferences may align with your business.
- Stage: Find out if they invest in early-stage startups, growth-stage companies, or established businesses.
- Founder's Profile: Consider the investors' track record in supporting businesses led by diverse founders.
- Specific Missions or Causes: Research if they have a particular focus or mission, and align your pitch accordingly.
Conducting thorough research has several positive impacts:
- Tailored Pitch: Understanding their preferences allows you to craft a pitch that resonates with their investment goals.
- Relevance: Presenting how your venture aligns with their past investments can highlight the relevance of your proposal.
- Building Rapport: Showing you've done your homework demonstrates professionalism and dedication.
By conducting in-depth research and thorough preparation, you'll approach potential investors with confidence and increase your chances of securing the funding your business needs to thrive.
In summary, Zachariah George's advice provides invaluable insights for African founders seeking investment to build valuable businesses. The four pitfalls to avoid are:
- Lack of Skin in the Game: Founders must demonstrate their commitment and belief in their venture by investing their own resources before seeking external funding.
- Founders Paying Themselves Excessive Salaries: Prioritise business growth over personal financial gains, earning equity as a reward for dedication to success.
- Not Clearly Defining the Use of Funds: Clearly articulate your plan for the raised funds, understanding the difference between debt and equity funding and focusing on growth-oriented funding sources.
- Lack of Research on Investors: Thoroughly research potential investors, tailoring your pitch to their preferences and demonstrating alignment with their investment goals.
For African founders, avoiding these pitfalls is crucial when seeking investment to build valuable businesses. By heeding this advice, entrepreneurs can enhance their chances of securing funding, driving growth, and making a significant impact in their communities and beyond. With a well-prepared approach, dedication, and a clear vision, founders can navigate the investment landscape and unlock the resources needed to turn their business dreams into reality.
It is important to know that an investor often makes their decision about investing within the first 10 minutes of speaking to you. It is up to you to show them that you are a good fit and what you can offer within this time frame.
Catch these valuable fundraising resources from Pranary:
- The Ultimate Playbook for Raising Investment in 2023: Insider Tips From an Investor
- Investment Accelerator: 8 Expert Tips to Help You Secure Investment
- Mastering the Art of Pitching: Avoid These Common Mistakes When Pitching Investors
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