What is strategic financing for African startups?

What is strategic financing for African startups?

Points in this article:
1, Every startups need to make a decision whether to procure funds in the first phase
2, Understand the present situation of the African market well and make a strategy to capture the market
3, If they decided to raise funds and approached the investors;
 · Recognize the premise that it takes a long time
 · Try to raise funds under the cooperation of people who are familiar with fund procurement
 · Find investors who well understand the scheme and risk of the each startup

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“Not all African tech startups will feel the need to raise VC funding, but those that do must ensure they are adequately prepared for what is a lengthy process.”

That is according to panelists speaking during a session on the African investment landscape during last week’s Africa Tech Summit in Kigali, which brought together stakeholders from across the continent and beyond.

Ido Sum is partner of TLcom, which last year raised a US$40 million fund for African investments and was among the participants in Andela’s landmark round back in October. http://disrupt-africa.com/2017/10/andela-raises-40m-in-landmark-funding-deal/

He said startups had a decision to make about whether they needed to raise funding at all.
“Not all companies need VC money. There are plenty of good companies that will build without raising. It is the founder’s choice,” he said.

This was a view shared by Wale Ayeni, who leads the IFC’s VC operations in Africa.
“The best kind of money you can ever raise is the money you get from customers. I know people who have been able to do big businesses without investment,” he said.

Ayeni advised startups operating on a continent where only 25 per cent of people are connected to the internet and where the middle class remains relatively small to focus on the mass market.
“The mass market is the only market in Africa. You have to figure out how to get to that market. Tech is not going to change that. Tech is an enabler, but you must understand the power of the mass market,” he said.

When it comes to actually approaching investors and securing funding, Sum said startups needed to approach it in stages and be aware it usually takes a long time.
“It is a much longer process than you expect. There are lots of logistics behind it. So I would advise to start preparing well in advance,” he said.

Ben Peterson, senior partner at AHL Venture Partners, said startups would be well served by sitting down with someone in the know and getting walked through the entire process of fundraising before they set off on the journey.
“And I think as you learn more you will see where there are alignments with investors, and the process will become a lot more efficient. You need to find the investors that are focused on your type of business and your type of risk,” he said.

In spite of all the challenges, Peterson believes startups are operating in a market with a myriad of opportunities and one in which investors will increasingly see the value.
“A lot of these markets are going to see incredible, crazy growth. It is going to be a crazy ride. We have to keep in mind that we are just at the beginning, and we are now starting the real acceleration phase,” he said.

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The above comments can be summarized into the following five points.

1, Every startups need to make a decision whether to procure funds in the first phase
→ Of course, the best way to raise funds is to earn money from customers.
→ That is to make it possible to continue business with the operating cash in the main business.

2, Understand the present situation of the African market well and make a strategy to capture the market
→ By doing so, startups will build a foundation on which they can continue their business by operating cash.
→ The income of the middle class which is a mass market is still low, only 25% of the population can connect to the Internet, as the present situation.

(When the startup decide to approach investors and raise funds)
3, It is assumed that it takes a long time
→ Plan not only business plans on the premise of fund procurement but also plans for periods without funds. Less fixed cost.
→ Suppress initial cost or investment and endure long process of fund procurement. If the startup can recover the investment in the business, make it a middle risk mid-return business.

4, Startup should try to raise funds in cooperation with people who are familiar with financing, fund procurement

5, startups should find investors who well understand the scheme and risk of the each startup

Regardless of the procurement of funds, we can say that it is the basic attitude of startup to create a business plan that can ultimately be independent and enhance its feasibility.

※ Reference : Disrupt Africa

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