As an entrepreneur, you may reach a point where you want to raise external funding to help scale your business or decide to bootstrap with your personal funds and those of close friends and family. If you’ve chosen the former, it’s crucial to make sure that your business is one that investors are willing to finance.
Traditionally, Caribbean enterprises have relied on debt financing to achieve business goals largely due to the structure of our capital markets. However, this form of funding has limitations as businesses can become over-leveraged, carrying a large amount of debt on their books. While some can find the amount of financing they need, it may not be the right type of financing. As such, consideration can be given to equity financing where this option is available.
If this is something your company is in the market for, here are a few areas you should carefully evaluate and adjust to ensure your business is deemed investible.
Build the right team
Building the right team is the first step in creating an investible business. Investors want to be assured that the team running the business is properly equipped to do the job. As such, persons at the helm must be suitably qualified and experienced to drive the direction of the firm and achieve success. The composition of your board should signal to investors that they are capable of doing just that.
According to the Harvard Law School Forum on Corporate Governance, a strong board composition is diverse, experienced, tenured and independent. Diversity speaks to directors who represent a broad range of society inclusive of different genders and minorities. Experience refers to persons with business experience relevant to the company’s industry that enables them to offer perspective on business strategy and risk. Board members with varying years of tenure can offer different experiences while persons deemed independent do not have relationships with other board members or external companies that can compromise their position.
Christopher Williams, Co-Founder & CEO of Proven Investments Limited, believes that very attractive competence attracts capital. In a panel discussion hosted by Kevin Valley, he advised entrepreneurs to focus on building their competence through experience. He also added that whatever industry you are seeking to develop a business in, you should ensure you have solid competence in that field.
For instance, if you’re starting a business in banking & finance, it’s important for you to understand banking and ensure you have risen to good heights in employment status in that environment. He also advises that the experience of your team members should strengthen the competence of your business.
Entrepreneurs in the early stages of building a business should identify and approach a diverse set of people from various industries (sales, operations, accounting, etc.) so that the collective competence can attract capital. Furthermore, it’s useful to note that not all team members are required to operate within the company; some can give input as shareholders and advisors. This is noteworthy as onboarding these key personnel as staff can end up significantly impacting your bankroll.
Get a mentor
Entrepreneur shared that 80% of mentored businesses have experienced growth, heightened revenues and success in the long term compared to businesses that did not receive mentorship. This startling statistic points to the importance of mentors as a compass and source of advice during the entrepreneurial journey. The involvement of a tenured industry professional with your business can also spell good news when fielding investors. This is because investors are likely to trust the opinion of a seasoned and notable professional when considering whether to invest.
Berisford Grey, CEO of Sygnus Capital shared that despite your corporate worth it’s important to identify mentors. Receiving consistent guidance from seasoned mentors can save new entrepreneurs many pains and mistakes associated with running a business. By tuning in to their advice, you can focus and gain success in a shorter timeframe and with fewer losses than going on your own. Mentors can also be helpful with business planning and accountability as was shared by Vashtie Dookiesingh, Senior Specialist at the Inter-American Development Bank. Regular meetings of this nature can really help you stay on track with your business goals.
Mentor meetings can be used to ask questions, catch up or simply meet up. In the first 2 years of business, those conversations will be very insightful and one 30-minute discussion with a mentor can provide a wealth of advice on any problems you may be facing.
When considering the composition of your board, experienced businesspersons can sit on the board and advise, but as an entrepreneur, your mentors should ideally also be entrepreneurs as that journey is very different from corporate life.
If you’re looking for a mentor, you may want to consider your network including former colleagues, board members, directors, etc. Alternatively, you can seek to make connections at industry conferences and events or simply by reaching out to respected businesspersons on social media.
Robust Corporate Governance Structure
The International Finance Corporation states that “good corporate governance – well-defined shareholder rights, strong internal controls, high levels of transparency and disclosure, and an empowered board of directors—can improve a company’s performance and profitability, and make it more attractive to investors and lenders”. In other words, a strong governance structure sets the tone for your business performance which ultimately impacts your viability for investment.
The CEO of Sygnus Capital, Berisford Grey, adds that success through the stock exchange requires a very organized business covering everything from accounting to operations to governance structure, etc. If you’re seeking capital via the stock exchange, it’s especially important to pay close attention to this as stock exchange rule books typically lay out guidelines for corporate governance. The Jamaica Stock Exchange spells out its expectations that specific subjects be addressed in the corporate governance terms of reference of companies seeking to be listed with them. Some of these include duties, responsibilities and qualifications of board members, succession planning for management and information on accountability and audit.
Ultimately, investors want to know that the company in question is credible, has strong leadership and has a solid structure in place to achieve its growth and profitability goals.
Fall in love with the problem you are solving
Vashtie Dookiesingh, Senior Specialist at the Inter-American Development Bank, stated that with the rise of tech-enabled businesses, many entrepreneurs have become obsessed with technology while paying less attention to the problem they should be solving. These entrepreneurs can speak at length about the usefulness and features of the app they are making as well as its users but often lose focus of the problem to be solved i.e., the reason the app was created. Their ability to thrive and maintain a sustainable business model in the ever-evolving tech space may be compromised by this.
She advised that the fundamentals of business have remained the same throughout history and that as an entrepreneur, you should focus on how you are creating value, and how you are capturing value from what you’re delivering. Clarity on this is important as the solutions can change as the world evolves and you must be ready to pivot quickly in response to those changes. The clearest example of this is the move from brick-and-mortar sales to online. Companies that have failed to capitalize on this transition have likely lost out on sales as more consumers opt to discover and purchase from brands and businesses using online portals.
Berisford Grey, CEO of Sygnus Capital supported this perspective but added that it’s important to be clear on what you’re asking the team to do as their execution is made manifest in the bottom line of the business. It’s important to be clear on your strategy, business plan, and the problem being solved because if your business is focused on solving a real need in society it will naturally become sustainable. Even if that is not the case, investors can take a medium to long-term view of what the business will transform into based on what you want it to be.
Investors want to know that their investment can do well in the long run. Your ability to keep focused on the problem is an indication that your leadership is focused on the right thing. So instead of obsessing over the tech being created, obsess over the problem to be solved. That way, as the problems evolve, you can find innovative solutions and remain relevant within your industry.
Ensure that your business is scalable
Co-Founder and CEO of Proven Investments Limited, Christopher Williams, identified business scalability and returns generated as two of the most important factors his investment company looks for when deciding whether to invest in a company. This is because a scalable business ultimately means the potential for greater returns to investors in the long run.
In a previous article, we discussed how generating increasing returns to scale is a good indication that your business model is scalable. We continue the discussion by adding that, if your business is focused on solving a relatively large societal problem, the potential returns to be generated are greater, and so too are the opportunities for scaling.
Berisford Grey shared that this was the approach taken when he and his partner were aiming to set up Sygnus Capital. After undertaking market research on business financing in Jamaica, they identified that there was limited capital accessibility and alternative financing within this market, particularly for medium-sized firms. They also discovered that less than 30% of funding was being lent to medium-sized firms, while small businesses got only 13%.
Given that they were aiming to fill a sizeable hole in the market, with the right strategy in place, their business stood to gain notable profits and could potentially be scalable.
Tell a compelling story
Convincing potential investors of the worthiness of your business is all about telling a compelling story grounded in passion, commitment, and the drive to get things done.
Vashtie Dookiesingh, Senior Specialist at the IADB has spent several years as part of a team that has financed over 200 projects in the last decade. She advises that before taking investor meetings, it’s crucial that you prove you can grow your business and turn a profit. Presenting an idea is not enough; investors need to know you are serious about growth and that the money being invested is going be used to propel growth and not something else. They are also interested in knowing that you are going to be open to sometimes brutal advice and guidance on where your business is. Your success is dependent on your ability to navigate through that and distil what the message is.
Private investment is an excellent method of financing one’s business, but it takes a lot of work to ensure your business is ready for consideration by serious investors. Ensuring you have a competent team, guidance from seasoned mentors, a strong governance structure, a scalable model and a clear vision focused on solving big problems can provide a good base to open the investment conversation.
All of this must be clearly articulated in a compelling story about your commitment to business growth. You don’t want to be in a position where you take on investment and cannot meet your own goals or the goals of the investor. This can hamper future investment prospects if initial funding is mishandled.