The 8th Fortnyt Series hosted by TechBuzz Hub under the theme STARTUP INVESTMENT AND FINANCING (What forms financing can you take advantage of as a startup?) on the 2rd of February 2018 at TechBuzz hub main office located in Ntinda. The session was paneled by individuals in the startup investment sector; Mr. Brian Mangeni Country Director Einstein Rising, Mr. Kenneth Legesi Co-founder and Manager Kampala Angel Investors Network (KAIN) and Deloitte. During the question and answer discussion a lot was shared basing on the panels experiences working with startups; from the criteria they use for selecting suitable startups that receive funding or investments into their projects, to how startups can attract investors, the various platforms startups can look out for in order to apply for funding. The session kicked off at 6:00pm with the moderator Mr. Keneth Twesigye asking his set of professional and yet interesting questions to the panel in regard to the theme.
Briefly tell us about your company and your experience in investment or startup financing?
“I am a Civil engineer by training but along the way got interested in finance” said Kenneth Legesi Co-founder and manager KAIN. KAIN is a bridge between startup ideas and angel investors. KAIN matches startups to angel investors, it takes applications and every quarter we have what we call angel days where startups do pitching” Legesi said.
“Am involved in a lot of startups. I have problems focusing and I have accepted that. I am involved in an online business for Uganda called ‘Ssente’, am involved in carrier business: transport is the in thing in Uganda now. Am passionate about data ability and block chain, he added.
Raised and educated in Uganda, Brian Mangeni “Graduated at Makerere University with a bachelors in architectural science, worked in accounting for 3 years and started financial accountancy firm. I worked with a Health and Fitness Company” Brian said.
”I aligned my business to support startups. Einstein Rising is a business accelerator that deals with entrepreneurs. Our criteria is PPP. Profit (does the business have the ability to make money) Planet (cares about the environment) People (gives back to the people), said Brian.
When was the last time you made an investment and what was its worth?
Brian: “The last investment we made was August last year. We made two investments and each was USD$5000. When we invest, we need to be adding on a particular area in the business.
The first investment was in videography startup and we were able to get them equipment and their profit margin increased. The second investment was in a tomatoes startup, a guy was helping farmers to preserve tomatoes and needed the investment to purchase equipment.
We managed to get him equipment and now he is making tomato source and his product is on the map” Said Brian.
Legesi: “I invested 2M Uganda Shillings in a media company trying to tell the stories of Uganda startups and this was about a month ago and since then about 3000 articles have been published about startups, with 17 different guest writers” said Kenneth.
Assuming I raise capital from friends, family or crowd funds, do I have to find out their investment accreditation?
Legesi: “Whenever you’re taking money from anyone they are taking a risk. It’s your responsibility to tell them all the information they need to know in order to make an investment decision,” Legesi said.
“I don’t know if there is a platform for accreditation for crowd funding. In most jurisdictions, the crowd funding legislation is just catching up with them” explained Legesi.
“Akabbo crowd funding website is the only Ugandan crowd funding platform I know of” Kenneth mentioned. There are different platforms for crowd funding, Equity based crowd funding, Debt crowd funding for lending circles and Grant funding for kick starting.
Brian: “In USA if your crowd funding people are preordering on a product they believe in.“For any entrepreneur you’re encouraged to start with your family. It gives you a lot of credibility if people around you believe in your idea, it means your trust worthy.
All you need to do is sell your idea to your father” he advised. “It’s good but I don’t think It should be accredited” Brian Added.
How do I weigh value worth of my startup to stand a better chance of negotiating best for pre-money value?
Brian: “If you’re at a starting point please don’t look for investors, because you have no value, Said Brain. You’re building a media platform and you have no followers, you have a product but haven’t made sales yet.
It’s hard to value your worth. It’s easier to value it when it has started making money explained Brian. “Investors don’t invest in ideas they invest in track records” he noted.
Legesi: “You need to get an idea, do market analysis, market fit, revenue model and prove how you will scale out fast. Until then your start up cannot be valued. Said Legesi
What are the different processes you take to make an investment decision?
Legesi: “Depending on the stages, there methods for valuing your business:
Assets that you have – (human capital, how much will you be paying them?) Income approach– (how much it’s making to date!) Comparables – (have they recently been sold?)” Kenneth explained. “It’s hard to value a business without a product” he added.
Brian: “When you look at traction, it’s hard for us to see where you’re going and how our investment will add value to your business. You have to have your numbers straight. We look at the ability to scale.” said Brian.
Legesi added that when looking at Comparables, business is based on how many times my money is bringing back. As a venture capitalist Invested 100 Million, he knows twenty will be successful.
It means 80 are wasted and 20 will bring returns. Invested for 3yrs I need to cover the 100 I put up. Therefore I focus on the 20 to cover my investment. Investors look at over what time? How much am I bringing up? Those are the metrics of investors”.
How do investors or venture capitalists weigh or value companies’ worth?
Legesi: There is a broad frame work it’s really not standard. You identify a company you are interested in, you do screening, market fit, what kind of entrepreneurs they are! Due diligence, legal fees tax records and on that record you will be able to set value, he said.
Brian: Based on Einstein Rising and as earlier said, “UPPP is our criteria, uniqueness, Profitability, People and Planet for environment, all that will get our attention.
We want to get your ideas in simple sentences. How deep are your finances? When we get into the individual’s, what’s your story, people who have had it hard in life are most likely to succeed, said Brian.
Can you manage your finances? We look at your process, if we screen you and you get in, we work with in order to get to the investors and the others, we advise you there and then” he explained.
Of what portfolio should businesses or innovative solution have to be at a level of investor or investment capable?
Legesi: “It’s a bit chicken and egg Kenneth said. You need to find the right kind of investor. I think any business can be made attractive to an investor. Startups seek for investors abroad and pitch ideas that solve problems in Uganda. That is fine unless you cannot show them the market share in Uganda is big.
Try to make your business relevant and scalable across he advised. “You either go big or go home. You’re in a startup business which is a high risk business, people want to invest in a business that impacts people in a major way. Certain sectors might be hard to tap in depending on how technology can be applied in your business he said.
Brian: “Our portfolio is simple,” said Brian, you have to fulfill our criteria. A guy in Rwanda who sells airtime while using moveable cars with solar panels to charge phones and uses disabled people to drive the cars, said Brian.
As investors, how do you relate and interact with founders after your investment?
Brian: “Once we invest in a company we expect to be involved in top management, the ones that see the bigger picture. We keep constant communication, taking part in decision making.
The impact is very important as an organization, how much impact are you making, it comes with investment how much percentage are you getting on the company. “We keep an advisory sit on the company,” said Brian.
Legesi: “Most startups want to do everything by themselves “We have to learn to work in teams, it helps you learn. It helps you go further” Advised Legesi. This board of advisors is the one that will link you to investors. Every month we have reports to know how things are going” he added.
“Start small but think big, start with some senior people who can always advise you. There has to be a level headed person who will tell you you’re spending a lot of money. Accelerator programs in hubs have mentors. Board of directors, go on LinkedIn and look out for people who might have heard of you” he advised.
What happens to both in situations of startup failure? That cutting edge element!
Brian: “As an entrepreneur you must have a mindset that I will not fail. I have had businesses that have sort of failed but I had to rethink and try again” Brian recalled. “If you have not stolen it, you have not misused it, we would continue working with you. The fact that we invested in you, we saw potential in you” he said.
“Once we have invested in you we will work with you and go through the challenges and try and bring it back up. As long as you’re not giving up we can give you an allowance for the first year which is the breakeven as long as the impact are there, we are willing to invest” he explained.
Legesi: “Before investing in you we look at integrity, communication and transparency hard work. You have the responsibility not to lose that money. If we lose that money maybe we can go to bed saying we did the best we could! Kenneth said.
What are the different platforms do you suggest that startups can utilize to obtain funding for their startups?
Legesi: The right investment and the right categories: competition that will give you seed grant, awards, Private Sector Foundation Uganda (PSFU) gives you are a bigger grant, ICT innovation grant and then Global grants.
We need to get into the culture, we collect money for weddings and graduation we need to do the same with business.
High net worth individuals and the causes they want to fund may be in line with what you are doing. For instance Bitature US$4000, MTN Foundation, Private equity funds, private sector funds, stock exchange and banks come later when your business is much mature in the business.
Brian: “I have one and it’s Google. I think every startup should go search in Google Grants in Africa, Google Ventures grants in Africa. Google will tell you everything you need to know.
Added platforms were; Tony Elumelu Foundation, Hivos, kick-starter” said moderator that are some other platforms to look out for when looking towards applying for startup funding.
Random Question to both Audience and finally Panelists:
Between the two investment and revenue what is more important in this perspective?
“A little bit of both, but for start-up it has been more of investments, investments drives a startup and also leads to implementing, I am able to estimate the revenue later” said Joshua Nsimbi.
“Have always believed something enough. Seeking an investment without revenue it makes you more of a beggar. It’s like admitting you can’t make money without money” Marvin Kajimu.
“All I can say is, Both are important. If I don’t have investment revenues are constrained but yet also revenue is needed for sustainability.”
“Revenue is more important since it’s what investors highly consider for a lasting sustainability of the business.”_ Roy Nagawa
Both Panelists finally said its REVENUE that matters most at the point of thinking about startup financing thus merged win considering the two Investment and Revenue, the later latter scoring four(4) and the former gets a one(1).
Won’t it be unrealistic for a startup to say my target market is Africa for a startup that doesn’t even have a minimal viable product (MVP)? (Desire Akanduhura)
“Your addressable market has a need. When scaling out you, you need to have already seen your growth market capability. You need to show that you have a formula for replicating what you have done in Kenya, Rwanda. That’s scalability” said Legesi.
If you have an idea and find another bigger organization doing exactly the same that you were planning to do, do I decide to be an agent? How do you approach? (Roy Nagawa)
“You have to have leverage in what you do. You build your own things and try to scale it as fast as possible and talk partnerships. Think of them like as existing competitors for you. If you grow big enough they will come for you. You have to have ideas to expand the business. Each of these are exits, you have to plan them now” said Legesi.
For startups to receive funding or investment for their ideas, you must have a minimal viable product (MVP) that is already on the market, you should know your business inside and out, your revenue model, how your business makes money, the problem your solving, solution your providing, how your business is going to scale, how much investment you need and what the money is going to do in your business.
These are the first things that a startup needs to have in check before pitching to an investor. First and fore most before seeking for external funding startups need to first seek funding from family and friends and be the first ones to inject money into the business. You need to prove that you’re committed towards achieving success in your business by being the first investor.