Expanding and building a business usually demands a substantial injection of cash. How does one win over potential investors who can provide growth capital? Dragons’s Den dragon Polo Leteka provides the answers.
The availability of funding
The market is turning, and it is becoming more realistic to try to attain growth capital. That said, I do think bootstrapping is important.
Start off small, create value first. Go for growth funding instead of trying to get hold of seed funding. It is expensive to get funding early on. Moreover, you seldom even know what your financing requirements are when you’re just getting started.
Growth funding vs seed funding
When it comes to seed funding, you’re really only selling an idea. There are very few guarantees for all involved, and, because of this, it is an expensive way to finance.
You often need to give away significant equity, which makes life much more difficult.
With growth funding, you are trying to grow something that is already established, and that has real numbers to back things up. Because of this, it is cheaper to get hold of finance – you’re not just selling an idea.
You’re talking more intelligently about the opportunity and can draw on actual experience, which means you’re having a more sophisticated conversation with potential investors.
Growing too quickly
Growing a business is tricky and can trip entrepreneurs up. In a lot of ways, a new business is just like a baby. A baby needs to learn how to sit, crawl, walk slowly, and then run. A business is the same, and growing is the ‘running’ phase of a company.
A lot of lessons need to be learned before an entrepreneur can safely start focusing on expanding a business aggressively. As an owner, you need to really get to know your business first. You have to find out what works and what doesn’t.
Growing a business is risky. Liquidity is needed, and the risk exists that you’ll over-leverage the company. You also need to take into account what effect growth will have on your suppliers, staff and clients.
As the saying goes: You need to back the jockey, not the horse. I’m drawn to entrepreneurs who prepare well for a pitch. I like people who do research, know their target market well, are passionate and work really hard.
The business opportunity being presented is important, of course, but, for me, it is first and foremost about the person. Only if I like the person do I start looking closely at the business.
How to pitch
Firstly, you need to get to the point very quickly. Too many entrepreneurs get caught up in the minutiae of the business. Or they start spouting jargon. I believe in simplicity. Don’t make things too complicated. Keep the concept simple — state the basic problem you’re trying to solve.
It is also important to know your potential investors. Do they have a specific investment philosophy? Do they demand a fixed ROI?
Thirdly, you need to know your numbers. Assumptions have to be clear, tested and believable, especially when it comes to growth funding. You need to know your market and your business very well.
Lastly, you shouldn’t try to hide your mistakes and failures. Investors like to know that you’ve learned lessons, especially if those lessons were hard-learnt.
Business is about relationships. You don’t want your partner to feel as if they have been taken advantage of. You want the other party to feel that their needs are being taken into account.
Our default position is often selfishness, which is not conducive to a long and positive relationship. When you try to win every battle during a negotiation, you often end up losing the war.
Instead, work towards common ground as much as possible. Don’t be too short-term in your outlook – focus on the bigger picture.
The art of pitching
Some people are better at it than others, but that doesn’t mean that it can’t be taught. You can get better at it, but it takes work. You need to practice and refine your skills.
A lot of it is about being able to read your audience. If you’re serious about improving your pitching skills, it might be worth finding a coach to work with.
Your business plan must have a very clear budget. You need monthly, quarterly and annual figures. You don’t need to stick to the budget absolutely, but it helps you to see if you’ve over- or under-spent.
Your budget should be fluid — managers must be able to get approval for expenses if needed — but a budget is your first point of control. A proper accounting system is also crucial.