MONEYCLINIC VENTURE CAPITALISM

Suck it up!

Some handy resources for venture capital funding

Entrepreneurs must share some risk with venture capitalists

The Crowd Fund at www.crowdfunding.co.za: Early stage start-up venture capital of around R50 000 to develop proof of concept. SA Venture Capital & Private Equity Association at www.savca.co.za: Details of various venture capital partners in SA.

IF YOU'RE LOOKING FOR a venture

capital firm to back your start-up company you need to be realistic about your expectations... and you need to learn to look in the right place for the correct sort of funding. That's the advice from Justin Stanford, CEO oí investment Brm 4Di Capital, who last week lamented the fact entrepreneurs in South Africa were approaching him for big money investments but weren't prepared to assume any of the risk. "When 1 launched my first start-up I was surviving on R2 000/month," says Stanford. By contrast, he says entrepreneurs are now pencilling in market-related salaries in their business plans and expecting that to be funded by venture capital money. Stanford also expresses concem that investors are too quick to seek out larger investments without having cut their teeth proving their business model works or they can even develop viable technology, "Where are the businesses looking for R50 000 to RlOO 000 to get going?" However, entrepreneurs counter-argue early stage investments of that size aren't juicy enough for traditional venture capitalists •ind lending channels, such as the banks, liave little or no appetite for start-up investments. That leaves a gaping hole in SA's funding market. However, help may be at hand from Ihe recently launched Crowd Fund, the brainchild of StJuth African entrepreneur live Dmochowska. She's pulled together some of SA's top technology entrepreneurs and investors, including Stanford, Justin

Spratt (from IS Labs) and Vinny Lingham (now based in Silicon Valley. Those entrepreneurs will serve on a board that will select investments and mentor technology entrepreneurs to get their businesses off the ground. The Crowd Fund concept is quite an innovative one, in that it's attracted investments from private individuals who have pledged their own funds. To date, 371 investors have raised Rl,2m in funds to support start-ups. That shows that angel investors are keen to come to a party. However, those seeking funding also need to come to the party. Here are some tips funders have prepared for entrepreneurs seeking venture capital funding: • Venture capitalists invest in people. Highlight your past successes and prove you know your industry when putting together your business plan. • Incubators, accelerators and venture capitalists are reluctant to invest in businesses where all the intellectual property is tied up in the heads of one or two individuals. Focus on monetising your intellectual property and building a competent team around you to create an asset that's transferable. • The SA market is relatively small in the eyes of many investors. Work out early on whether you can go global.

Raizcorp at www.raizcorp.co.za: Small business incubator, training and mentoring. Aurik at www.aurik.co.za: Small business accelerator to help early-stage businesses into assets of value. South Africa Investment Network at www.investnientnetwork.co.za: Connecting entrepreneurs and investors. South African Start-up Index at www.sastartupindex.co.za: Tracking some of SA's most promising start-up businesses. GroFin at www.grofin.co.za: Multinational specialist SME finance and development company.

Investors aren't there to fund your lifestyle, particularly in a high-risk startup. If your management salary bill is your biggest line item on your budget it says a lot about your priorities. A "spray and pray" approach to raising venture capital is unlikely to pay off. Rather prepare your pitch to the funder's requirements. If you need R50 000 to prove your technology works then approach somebody like the Crowd Fund instead of a mainstream venture capital fund. MARC ASHTON

marca@ßn24.com

6 MAY 2010 FINWEEK

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