The Ultimate Playbook for Raising Investment in 2023 & Beyond: Insider Tips From an Investor

entrepreneurs pitch deck pitching raising funding

Created by Pranary in partnership with Lelemba Phiri - Gender-lens investor and Founder and Principal at Africa Trust Group. 

Welcome to our ultimate guide on how to raise investment in 2023! If you're a founder of a small, medium, or micro-sized enterprise (SMME) in Africa or other developing countries, and you're looking to secure investment to grow your business, then you're in the right place. We understand that raising investment can be a complex and challenging process, but fear not, we're here to support and guide you every step of the way.

In this comprehensive guide, we'll cover the five key things you need to know to successfully raise investment in 2023. These include:

  1. Understand the investors mindset.
  2. The current economic climate
  3. Three things that determine the financing that you can access.
  4. The types and sources of finance that are available
  5. How to best position yourself to win.

At our core, we're here to share insider secrets and expert advice that you can take action on to build a successful business. We're committed to supporting you in your journey to grow your business and raise investment, and we're excited to provide you with the knowledge and tools you need to succeed. So let's dive in and uncover the true insider secrets to raising investment for your SMME.


1. What is the investor mindset that drives investor decision making?

As a founder seeking investment for your SMME, it's crucial to grasp the investor mindset. We often feel misunderstood by investors, but it's important to understand where they're coming from and the challenges they face.

Investors are constantly balancing risk and return. You might believe your idea has tremendous potential, but investors evaluate opportunities based on the risk-return equation. It's vital to prove that the return outweighs the risk to capture their attention and secure investment.

It's also essential to empathising with investors and the challenges they face. They are accountable to their own investors, they are busy, and they receive countless pitches daily, many of which may not align with their investment strategy. Furthermore, finding businesses that are truly investment-ready can be challenging, even with available funds. 

To succeed in raising investment in 2023, understanding the investor mindset is paramount. Remember, investors are people too. Approaching them with empathy and aiming to build a relationship based on minimising risk and producing a return can significantly enhance your chances of securing investment for your SMME


2. How Does The Current Economic Climate Affect Investment Opportunities?

The current economic climate plays a critical role in how investors approach investing in businesses. Global events impact the market and ultimately affect how much money is available for investment in different regions, including Africa. It's important to have a macro-level understanding of these events to better understand investor behaviour and their decision-making process.

With the world recovering from the effects of the pandemic, there are other significant events like the war in Ukraine and bank closures, such as the Silicon Valley bank and Credit Swiss, that are impacting the market. Additionally, interest rates and inflation are on the rise, which increases the cost of money and raises investor expectations to make a return.

Talking to different investors, it's clear that there are different ways they are responding to the current economic conditions. Some are adjusting their risk appetite and investment approach, while others in the tech space aren't seeing anything differently.

Regardless of their responses, as a business seeking investment, your responsibility is to position yourself in the best possible way by applying the principles and tips that we offer in this guide. It's also important not to give up, as there will always be ups and downs in the market, and perseverance is crucial to success in entrepreneurship.

Source: BlogSpot

3. Three Things That Determine The Financing You Can Access

The 3 things that determine the type of finance you can access are:

3.1 The type of business you are building
3.2 The stage at which your business is
3.3 What you need the money for

3.1 Does the type of business you are building affect your investment prospects?

The type of business you are building is an important factor to consider when seeking financing. There are generally five different types of businesses: self-employed, small business, scalable startup, corporate business, and non-profit business.

Self-employed businesses are those where the owner is the sole employee, such as a consultant or freelancer. While these businesses offer flexibility and the ability to work from anywhere, they are also limited in terms of growth potential and are considered high risk since the business is entirely dependent on the owner's ability to work.

Small businesses
, on the other hand, may have a few employees and are often family-owned or run by a small team. While they create a lot of employment, they also have limited growth potential and may not be suitable for investors seeking high returns.

Scalable startups
are those that have the potential to grow quickly and replicate their success. These businesses are attractive to venture capitalists as they offer the potential for high returns, but they also carry a higher risk due to their rapid growth and expansion.

Corporate businesses
are established, mature businesses that are typically stable and know what they are doing. These businesses may have already raised money and have a track record of success.

Finally, non-profit businesses are those that operate for a purpose rather than for profit. These businesses are often attractive to impact investors who prioritise social or environmental impact over financial returns.

How Does This Affect You?

The type of business you are building has a significant impact on the risk and return profile, which is crucial for investors to consider when deciding whether to invest in your business. Scalable businesses are the most attractive to venture capital investors due to their potential for high returns, while solo entrepreneurs and small businesses may need to seek investment from angel investors who are willing to take on more risk. Private equity investors typically prefer stable corporate businesses with a proven track record of growth, while impact investors are more interested in non-profit businesses.

Therefore, understanding your business's risk and return profile and finding the right type of investor is essential for raising funds successfully.

3.2 Does the stage your business is at affect how you raise investment?

Most businesses go through different stages. These stages are not clean-cut and sometimes, a business may find itself between two stages. Here we explore the five different stages of a business and the funding options available for each stage.

Stage 1: Setting up stage

The first stage of a business is the setting up stage, where most business owners use personal sources and networks to fund their businesses.
Potential sources of funding include:

  • savings,
  • overdrafts,
  • employment income,
  • family, and
  • friends.

During this stage, entrepreneurs are testing their ideas and finding ways to get their businesses off the ground.

Stage 2: Starting up stage

At this stage, entrepreneurs have sold a few products and have concluded that their business has potential.
Potential sources of funding include

  • angel investment,
  • loans,
  • accelerators/incubators, and
  • Proof of Concept (PoC).

Entrepreneurs who have made sales can access angel investors who are interested in their businesses. They can also get loans from banks or seek funding from accelerators or incubators. Additionally, corporates can provide funding and even offer a PoC, which can lead to more investment.

Phase 3: Scaling up stage

During this stage, entrepreneurs have a solid understanding of their customers' needs and a plan to grow their business.
Potential sources of funding include

  • angel investment,
  • venture capital, and
  • managed companies (corporates).

At this stage, a business is generally making at least $4,000 in revenue per month. This is quite fluid, but it gives an idea at the level at which venture capital starts getting interested.

Managed companies, which are businesses that are bought by corporates and work as a separate entity, can offer additional financing options.

Phase 4: Growth stage

At this stage, a business is stable and has fewer risks.
Potential sources of funding include:

  • Private equity,
  • venture capital, and
  • corporates.

Private equity investors are looking for stable businesses that offer good investment opportunities, while venture capitalists are looking for high-risk, high-reward investments.

Phase 5: M&A, Buy Out, IPO

The final stage is when a business is mature.
funding options include

  • private equity,
  • corporates, and
  • the stock exchange.

Businesses can go public by listing on the stock exchange, merge with other businesses, or be acquired by another company. We’ve seen examples of this, like when Facebook purchased Instagram.

The Role of Grants and Sales

Grants and sales are two financing options available to businesses at different stages of growth.
Grants are typically available in the first three phases of a business, from startup to scale-up, and can be obtained from either government or competitions. It is however important to realise that all funding costs something. This is also true for grants. They often come with an administrative and reporting cost which is included in the terms of the grant.

Sales, on the other hand, are the most effective way to grow a business and sustain it in the long run. Generating sales is the best way to prove the viability of a business, and there are numerous billion-dollar companies, such as Basecamp and Spanx, that have grown organically through their own sales efforts. Sales does not carry the same financing costs as other sources, and are a pure and inexpensive way to finance a business's growth.

How Does This Affect You?

Understanding the different stages of a business can help entrepreneurs navigate the funding landscape. Overall, entrepreneurs should be resourceful and take advantage of the funding options available at each stage to grow their businesses. It is also important to note that not all businesses will reach the final stage. And it is not always essential to aim for the final stage to make an impact and run a successful business.

3.3 How Does What You Need The Money For Affect Raising Investment?

When seeking financing, it is important to match the purpose of your capital to the correct source of capital. In this section, we will explore the five different needs for financing and the best sources for each.

Working Capital Needs

Sometimes all you need is working capital to bridge the gap between when you sell to a supplier and when they pay you. To access working capital, the best sources are short term financing options such as

  • overdraft,
  • order finance, and
  • invoice discounting.

These options can be accessed in 3 to 4 days, but there will be a cost, which is the interest you need to pay on the amount taken.

Asset or Property Purchase, Property Extension

For asset or property purchase, property extension, it is not ideal to approach a venture capitalist as it can be expensive, take a long time and cost you a portion of your business. Instead, medium to long term financing options are the best sources, such as

  • asset loans,
  • long-term loans, and
  • mortgages.

Scaling Plans

If you have figured out your business and know your customer, you might need to build it out through technology or distribution channels. For scaling plans, the best sources of medium to long term financing includes:

  • equity investors (VCs),
  • revenue-based financing, and
  • debt financing.

Equity investors take a portion of your business in the form of a % of shares, while revenue-based financing allows you to keep your equity but share your revenue with the financier at the agreed-upon terms.

All of the above

All of the above financing requirements can be financed through sales, i.e. Organic Growth
Generating sales is still the best way to grow your business. So I'm not the type of investor that pushes people to say, get funding, get funding, get funding. No! Rather, Sell. Sell. Sell. That is actually the best route for everyone.

All of your financing needs can be met if you keep increasing your sales.

How Does This Affect You?

Matching the right type of finance to your needs is crucial. By doing so, you can save problems upfront and leverage the right type of support around you. Remember, always ensure you are going to the right financier for the right thing.


 4. The types and sources of funding that are available

When it comes to finding capital finance for working capital, there are several options available. The most common way is to go to a bank and get an overdraft. Micro-lending companies can also provide quick funding, albeit at a higher cost, and require repayment in three months. Working capital providers offer more expensive money, but they provide a set time-frame for repayment.

Asset financiers provide financing for assets, and in case of default, they take possession of the asset. Long-term debt financing is also available, which can offer loans for up to 10 years depending on the business's viability.

For equity financing, businesses can approach accelerators, angel investors, venture capital, or private equity firms, depending on their stage of growth. Many businesses use a combination of these options to get the right type of financing.

Revenue-based financing is an alternative to equity or debt financing where investors get a percentage of future sales until they get a certain return on investment. Debt financing, on the other hand, requires collateral and can be challenging for small businesses, especially those run by women.

Grants are another option that does not require repayment, and businesses can apply for them through government programs. Competitions hosted by private organisations, like NetBank, are also a great source of funding which has a far lower administrative and reporting burden than government issued grants. Development Funders also offer grants, but you need to meet specific requirements to apply, like being in the sustainable energy sector, or applying cultural diversity to business solutions.

In summary, here are the best sources to access the different types of funding:

It is also worth noting that there is good debt and there is bad debt.

Good debt is debt that can actually make money for you.
Bad debt is when you are still paying off the clothes that you wore last Christmas. Be sure to use only good debt. 


5. How to Best Position Yourself to Win

In this final section, we will focus on three key things that can help you as a founder best position yourself to win funding. These include the following:

5.1 Treat the Funding Relationship Like a Courtship
5.2 Learn to Pitch Succinctly
5.3 Keep Business Records

5.1 Treat the Funding Relationship Like a Courtship

The first thing to keep in mind is that the relationship with any funder lasts for an average of seven years, so it's essential to approach the funding relationship like a courtship. Take an interest in the other party, ask questions, and find out about their interests and terms. It's also crucial to do what you say you will do to build trust, especially in an African context where there are many ideas but little traction.

Show your traction through

  • monthly sales,
  • the number of customers, and
  • your team.

5.2 Learn to Pitch Succinctly

The second thing to focus on is pitching succinctly. You can ensure this by doing the following:

  • Have a one-minute pitch for in-person meetings,
  • develop a written concise pitch deck, and
  • know your key metrics.

It's vital to be serious about your business and know how many customers you have and how much revenue you generated last month.

5.3 Keep Business Records

The third thing to keep in mind is to keep proper business records. This will help potential funders quickly understand how your business is developing. Keep the following as a bare minimum:

  • monthly management accounts,
  • bank statements, and
  • tax compliance records.

Having these things in place can significantly speed up the process of raising investment. The fastest investment we made, which was around $350,000, was completed in just six weeks because the founder had everything we asked for and responded promptly to all our requests. However, if records are not in place, it can take up to 18 months to finalise the deal.

How Does This Affects You?

To sum up, founders seeking funding should treat the funding relationship like a courtship, learn to pitch succinctly, and keep proper business records. These three things can help you build trust, demonstrate traction, and reduce the time it takes to raise investment. Remember, funding is a long-term relationship, so it's essential to approach it strategically and with care.


Other Resources for you:

Do you need support?

Join our Pranary Community where entrepreneurs like you get access to world-class resources, top industry experts, tried and tested methods, online and in-person events and so much more.

*We hate SPAM. We will never sell your information, for any reason.