Text: Tobie Van Zyl. Article from the April/May 2012 issue of Your Business Magazine.
Entrepreneur Tobie van Zyl started trying to raise finance for his free online personal finance-management platform moneysmart.co.za during the global financial crisis in 2008.
What he had thought would take six months took 18, when, after knocking on many doors and pitching to a range of investors, he finally raised an angel round of funding late in 2010. Here Tobie shares some of the lessons learnt on this journey…
Q: At what stage of your business cycle did you apply for funding?
We started at concept stage; we didn’t even have a prototype when we first tried to raise capital. At the time, we couldn’t find software engineers to prototype our technology, but we believed the business case was solid. We could prove that there was real market potential for the software, and that it solved a real problem. We also showed that we were the right jockeys to ride this business to market as both my business partner Zulfiq Isaacs and I had backgrounds in the industry.
Q: How you did fund your initial set-up?
I used my own money early on. I sold two businesses to live off the funds until we could get real funding. Zulfiq invested as well, and we both dedicated a lot of time to the business. The recession left me high and dry, and I had to turn to friends and family in support of the dream. I borrowed a little here and there when I needed to and paid back whatever I could when I had some money.
Q: What goes into a great pitch?
A lot goes into developing a successful pitch. You need to:
- Be clear about your objectives and the problem you are going to solve.
- Build your credibility by getting endorsements from your network, especially those who have witnessed your previous success.
- Demonstrate that there is a real market and a real need.
- Show how you will leverage (especially in start up) potential businesses and partnerships that you might have a synergy with to tap into their client base and extended networks at a marginal and minimum cost.
- Attract good talent by creating a founder share pool. They may need to sacrifice in terms of their salary, but will have the opportunity to share in the dividend and profit upside. You need people who understand the industry, your passion and vision for what you want to achieve.
- Intellectual property is your biggest asset at first and drives revenue. You will need to show that its proprietary and protected by including potential patents and trademarks.
- If you think you will need R5-million, you will probably need R10-million. Identify from the start how you will put your investors’ capital to work.
Q: What was the most challenging aspect of the pitching process?
Staying focused and passionate during the pitching process was tough. I was flat broke throughout the pitching process and it was challenging to stay positive. Investors took their time – as is their right. But for us the days felt like weeks, and the months like years.
Q: If you could do anything differently, what would it be?
I’d listen more closely to what prospective investors ask and suggest. Never assume you know it all. Investors want to see the thinking behind your idea. If you don’t have an answer to a question, say you’ll go away and find out, don’t try and solve the problem in the pitching den. Go back to the drawing board; the investor will wait for your answer. Also don’t ask that all the required capital be handed over at once. Ask for it in incremental payments. Show your entire capital requirement, but only ask for around 25% to prove concept and get to the prototype stage.
Q: What convinced your investors to get involved?
After pitching more than 35 times, going back to the drawing board time and time again, and having almost 100 astute wealthy businessmen provide feedback, we refined our pitch from every angle. Our final investors know our industry inside out, and the financial services industry is just as much their passion as it is ours. I think they saw themselves in our shoes. They don’t have much exposure in the financial technology arena, and they saw the potential in the market and in us as the founders.
Q: Are your investors involved on a day-to-day basis?
Our investors are our advisors, mentors and part of our team. They aren’t here on a daily basis, but once a month we have a proper reporting meeting and a big brainstorm. On a regular basis we celebrate little wins, and this has become part of our culture. We spend time outside the office together; you’ll be amazed at how many good ideas come up round the braai.
Q: In your view, what is the private equity landscape like in SA?
You have to be patient, particularly in the technology space, as a lot of potential investors don’t understand this market. There are very few millionaires who can risk their financial success on high-risk start-up companies. That said there do seem to be more Angel Investors around. They will probably look more favourably on requests for between R100 000 and R250 000 at a time. Once you’re past the proof of concept stage, you can try to integrate or cross position your offering with or into an existing corporate to access their network of clients, systems and proper management. A number of entrepreneurs have been able to do this successfully without sacrificing equity. This way, you can drive sales from the get-go and raise proper funding to scale your infrastructure and develop your product further.
Q: What funding advice do you have for fellow entrepreneurs?
Know your strengths and bring team members on board to fill the areas in which you are weak. Don’t assume you know it all. Listen to your investors’ concerns, and answer their questions by going back to the drawing board and getting your facts straight. Know your numbers, and don’t underestimate your costs. Suggest a cashflow based investment strategy; it’s much easier for investors to let their hard-earned cash go monthly instead of in chunk. Finally have faith in yourself, and never give up.
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