During the one-hour interactive discussion focusing on the Anglophone West African startup ecosystem, each investor shed light on the impact on funding opportunities brought on by the COVID-19 pandemic, the dos and don’ts of approaching investors, the relevance of social impact in approaching certain investors, and the role of trust in investing.
Let’s dive into some of the key takeaways and insights shared from the investors.
Are you still investing during the pandemic?
It was quite encouraging to hear a resounding YES from all the investors on the panel, in answering the question about whether they are still investing during and after the COVID-19 pandemic.
What impact has the current pandemic had on funding opportunities?
Each investor highlighted a shift in focus within the due diligence process due to COVID-19. In particular, they identified that greater emphasis is being put on the resilience and sustainability of the business, the approach for customer acquisition, as well as the management of cash flow.
What new opportunities has the pandemic presented?
The current pandemic has opened up many opportunities for startups. Startups that can review and reconfigure their strategies, target market and customers, through adapting the business model, pivoting to focus on offering a new product or service or embracing technology in the business operations are getting ahead during this time. For instance, prior to the onset of COVID-19, businesses in the health sector were not necessarily attracting much attention from investors. However, now more investors are discovering the high potential of companies in the health industry as the pandemic rages on. This is especially so in health tech or digital health sectors. Another sector that is seeing greater interest from investors is education, virtual education in particular, because of the pandemic, which is gradually making distance and virtual learning a ‘necessity’ for students and learners of all ages.
How to demonstrate your resilience in business?
As said by Vivienne Ochee Bamgboye, “True resilience means that after the wind has blown everything away, you remain standing”. Smart businesses should take actions to face challenges head on, especially in times of crisis. The investors advised young entrepreneurs not to wait for things returning to ‘normal’.
One example shared demonstrated how a company that specialized in solar energy had decided to expand its offering to produce mobile power banks during the pandemic, due to an increase in demand. The company seized on a gap for reliable mobile power it saw in the market to take advantage of this opportunity. They adjusted their focus to meet the increasing demand for consumers needing to charge their computers and phones on the go.
What does it mean to know your investor in practice?
Review your current status and needs before reaching out. This includes having both a clear picture about where your business currently is and your needs or rationale for seeking finance. In order to succeed in securing investment, it is critical to understand at which stage your company is, start up or growth for example, and where your company is going, and of course, how an investment will help you get there. In addition, it is worth noting to remember to identify the non-financial value that angel investors or impact investors may be able to offer i.e. mentoring and training, network, expertise in your industry.
Do research on investor(s) you want to approach. It is critical to come prepared, and to understand the profiles/types of businesses that they are interested in, their existing investment portfolio, if they have a social angle, if they have existing funds, and who their partners are.
An agency with Development Finance Institutions (DFIs) as partners, tends to be more interested in social entrepreneurs or companies with a strong social impact. A Venture Capital firm may have stricter regulations around the size of investments they will make and the stage or sectors they are interested in.
On the other hand, if you are approaching angel investors, keep in mind that these are individuals who invest because of a desire to support economic growth. It is reasonable to expect angels will invest in smaller ticket sizes, be open to a more flexible arrangement and exit timeline, and in terms of their expected return on investment, therefore making them attractive to very early stage ventures. Research the angel to understand the types of investments they have made before and to get a good sense of whether your business fits with this investment history.
If you are still at the ideation stage, it might be the case that the best option for you might not even be an investor, but an incubator! Only research and information can tell.
In other words, make sure that you do the research to find the right investor to pitch to and work with, and be aware of the pros (and cons) of each potential investment.
Having a commitment to social impact does not mean a social impact investor will invest in you. Especially when it comes to packaging your business proposition, make it clear that you are operating a business and not an NGO or ‘charity’. Investors invest in businesses that can grow and scale and generate impact and profits. If your enterprise is a not-for-profit, chances are seeking finance from an investor is not right for you.
In addition, Temilade Denton stressed that social impact is not only about job creation. Instead social impact is about the long-term effects that your business has on people and environment.
Having a business with social impact can increase your value proposition. However, critical to keep in mind is that, irrespective of their appetite for social impact, investors are not ‘donating’ their money, thus they need to see your capacity to generate income and ideally profit if they are going to invest.
Don’t expect to build trust overnight. Trust is earned, not given. Be transparent and open with your investors so that a mutual trust and confidence can be established over time. Trust changes with time and experience. Even if an investor turns you down once, be humble and stay connected and who knows, maybe in the future it will be the right time to approach them and things will turn out differently. Keep the long game in mind and don’t oversell yourself.
Inside tip! There is no harm in having a lawyer to seek advice from when negotiating with an investor to protect you from any risks or potential misconduct.
Looking forward, what does a post-COVID19 West African investment climate look like?
Although the pandemic has been a nightmare for many businesses, think the tourism sector, companies that are able to leverage technology to their advantage are seeing that the impact of the pandemic has been less severe. Post covid, investors will be more prudent and selective in funding, as their appetite for risk decreases due to the economic downturn of the pandemic. On the other hand, experts are optimistic that the situation will re-stabilize in the medium and long term. Eventually, investment activity will return to its pre-pandemic levels. Angel investor groups will continue to work to strengthen the ecosystem across the continent and could become even more important in the future.
Some interesting audience questions were also brought to light
Q: The Gambian tourism industry is heavily affected by the pandemic and many employees are laid of. What can be the remedy to avoid such unemployment in the future? Should investors play a role?
A: Yes, investors can play a role in accelerating the growth of (new) startups. Meanwhile, it is critical for a joint partnership between investors and the public institutions, i.e. the government and international development agencies such as ITC, to ensure the investment ecosystem robust and sustainable, which can create more avenues for inclusive growth, including the youth and women .
Q: Often young entrepreneurs are afraid of reaching out to potential investors owing to the fear of predatory investors who take advantage of the naiveté of these young people to cede management of their companies to them, which results in 'sellers remorse'. How do you think these issues can be addressed?
A: To better protect yourself from predatory investors, first and foremost you need to identify the right investors, based on your knowledge about your own needs and the investor. It can be helpful to speak with other entrepreneurs who are or have been at the same stage as you, so that you can learn from their experiences with certain investors or general fund raising.
Finally, entrepreneurs should know what they don’t know, and reach out to others, such as lawyers and financial advisers, who can mentor them during this process. In the end, the more information you have, the better equipped your are.
Q: In terms of debt, equity and mixture of debt and equity in fund raising by entrepreneurs, in your view what should the entrepreneur consider before settling for any of the fund raising options?
A: It is very important for entrepreneurs to be aware of how much risk appetite they have. For instance, if you decide to negotiate for the debt vis-a-vis the equity, the potential risks for you would be much higher. So, depending on your type of business and the return-on-investment cycle, you might want to start from small, adopting a ‘slowly but surely’ approach in raising funds.
Final key takeaways shared by each featured investor
“Access to investment is the key to the countries in the region, which still needs continued support.” -Amie
“Think from the ‘simple’ things, i.e. how to create value and keep the costs low? and start from there.” - Vivienne