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FIP 99: How local founders can attract foreign impact capital, with Andreas Zeller

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This episode shines a light on why local founders, who have excellent businesses, struggle to attract foreign impact capital. Open Capital Advisors has been advising in Africa for 9 years now, helping entrepreneurs grow, and helping advance economies, whilst also helping build a generation of business leaders in Africa. Based in Kenya, Uganda and Zambia, covering 20 countries in Africa and have worked on 450 engagements to date.

On this episode you’ll learn:

  • Village Capital studied the amount of impact investment money going to local founders, which showed less going to local founders. Some of the reasons is the lack of understanding by local founders about what is needed to raise capital, not being active in the networks that foreign investors are active, and knowing how to communicate effectively. Alot of OCA’s work goes towards bridging this gap.
  • Many impact investors from North America or Europe don’t have local offices and are not familiar with cultural norms or business practices in country. When they do, local staff are not part of the decision making process, so when they take deals to their investment committee, made up of members who are not familiar with the context, they’re often rejected.
  • Founders need to get good at how they describe themselves to foreign funders, how they articulate their value prop, how much info they need to share.
  • Another challenge is that local founders might expect to build a relationship over several interactions, whereas foreign impact investors might expect to develop a relationship over one meeting, because their time is limited in country.
  • Local founders might not have international brand names on their CVs like international founders. They may still have very good CVs with experience at reputable local companies or universities, but are not known about by international investors.
  • The due diligence process can be more effective by helping local founders understand what is necessary, what information needs to be shared and when.
  • Local events can be organised to allow for more touch points between local founders and investors.
  • One of the biggest frustrations of all the local founders that OCA works with is for an investor to quickly say No, if its a No, instead of wasting their time for 3-6 months on a lengthy process process.
  • A greater understanding of the language used by investors would help the whole process. But investors should not expect Founders to be finance specialists to enter into these conversations.
  • A primary reason why investors might give a No to local founders is lack of documentation and record-keeping. Also, a simple inability to communicate with local founders effectively. Also lack of trust, that local founders might not be willing to give a share of their business to international investors.
  • Local founders should also be clear about what they mean by impact, including how it will be measured – which is much harder than financial indicators.
  • Local founders should do their due diligence on investors, who you really trust, who believes in you and your company, and what they fund.
  • Funders who fund broadly, either early stage or later stage, who’re open to any stage of business, often, in fact, do have a sweet spot.
  • Getting support can help local founders, be it a mentor, an accelerator, or a business support provider, who are plugged into the investor community.
  • Andreas has seen a shortage of qualified Chief Financial Officer type human capital, who are people who can run analyses, help businesses make decisions, or form strategies. They created Arcadia to fill this gap.

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FIP 69: Funding 1/4 – Are you ready to raise money? With Elizabeth West of iGravity

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Today we hear from Elizabeth West of iGravity on the subject of investment readiness and the first steps in fundraising as the first episode in our fundraising series.

On this episode you’ll learn:

  • What it means to be “investment ready” and what are some preparation steps that enterprises should consider taking before engaging with investors, including taking time to build an advisory network and going one step further in terms of investigations or iterations on the product or business model. She notes that more than anything else, early-stage companies need constant advice and feedback from friends and critical friends.
  • For Elizabeth, investment readiness involves four main elements: an enterprise that really knows its customer segment and the value of its product or service, understands exactly how much capital it needs, and what they want to use investment capital for.
  • Elizabeth explains that when she is trying to determining the level of a company’s investment readiness, she does ask for signs of external verification of the company’s efforts, such as the names and numbers of customers and files with all the background research that the company has done.
  • Another important item that enterprises need to better highlight is the team – at the end of the day, investors interested in early-stage companies are investing in teams, not a particular idea or product, so the team should be presented thoroughly and professionally.
  • She recommends that even for start-ups, companies should go beyond initial signs of traction and do some real investigation into their markets and customers as a way to set them apart from other enterprises meeting with investors.
  • Elizabeth also mentions the importance of personality and that entrepreneurs should know that investors talk to each other, so it is important to represent yourself well in every meeting, because impressions will be shared.
  • Elizabeth advises enterprises to work closely with the investment officer to become an advocate for your company when the deal is presented internally and not try to push too quickly for the investment to be presented for an investment decision.
  • Finally, she shares that early-stage companies should try for multiple outcomes from a meeting with an investor, including a follow-on meeting, critical feedback on the business model, or connections with other investors that may be interested.

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