11.03.2010 17:27:18

Investors Network Team

As a new entrepreneur with a business plan, looking for business finance from an angel investor, its crucial that you understand what it is that the investor will look for before making their investment choice. In the same way that it many be unthinkable to start a business if you are not clear on the benefits that your product or service will be offering prospective clients and the specific needs that the service is offering a solution to, understanding the needs of the angel investor is a crucial step towards attracting the financing that your business may need.

The value of attracting the right investor to your business may be enormous. You are not only benefitting from the capital provided, but almost more importantly, you are gaining a huge amount of experience and access to contacts that your business will need going forward. Investors can help take a business forward by leaps an bounds and knowing what they are looking for will help you get your venture the capital it needs.

Most of the below issues will be includes in an effective business plan and may be provide key answers to questions that the business angel may have. The most important things an angel investor will want to know are:

25.02.2010 18:07:55

Investors Network Team

Do investors provide business finance to ideas or the people behind the idea? An interesting questions and certainly one that has received much debate at a recent networking meeting between business angels and entrepreneurs in Johannesburg. Most investors would tell you that it’s the idea that they are interested in but if you look at the ideas who receive investment and the people behind them its often easy to identify why one idea received funding and another, not.

In our business plan workshops I often make this point very specifically to the attendees that a key are of the business plan will be the people who are behind the business. You are as much selling the entrepreneur as you are selling the actual opportunity. Take it as you which but the fact is that deals are done between people. Yes the idea may be a great one but as the investor I’m looking at the person who I will be working with, what are their qualities, are they someone who can take guidance, are they argumentative (not always a bad thing by the way), are they creative, do they have contacts. All these issues have to come into play.

Click on the tilte to read more!

18.02.2010 18:17:25

Investors Network Team

Historically many entrepreneurs and business owners have seen private equity funds as the barbarians at the gates. Today Private Equity for Entrepreneurs is a real possibility with these firms already owning huge chunks of industry, including Whitbread, Weetabix, Medikredit, and KwikFit. South African private equity firms raised at least R 100 00 billion in 2008 and are often BEE compliant. They are said to be risk averse, but do take risks and not all their investments pay dividends - or survive. The point is, with record sums to invest, can start-ups and existing smaller ventures count on this form of investment to raise business finance?

So what does private equity firms look for?
·    Return on investment – normally at least around 40% return – So high growth to you and me!
·    People with vision, self-confidence, drive and energy, with aspirations to grow the business;
·    A clear team leader and team with complementary expertise, such as management, marketing and finance;
·    Market knowledge, a growing market, or an innovative product;
·    A product or service with a competitive edge or unique selling point; and
·    An exit route, that is, a chance to sell the shares within five to seven years, either back to the business itself, to another investor, or to the public by a listing on a stock exchange.

Let's assume you've got a great idea for a new business, but it needs serious funding - well into six figures. Can you count on your bank's support? Is venture capital a more likely route? Or private equity funding? What about business angels? How do you find them and choose the best one?

12.02.2010 09:57:53

Investors Network Team

Angel finance services has become increasingly important to South African entrepreneurs in in recent times.  With both business owners and entrepreneurial observers alike considering angel investments to be one of the key drivers behind the startup and the growth of new businesses in the country, despite a shortage of information to confirm whether or not this is true. Unlike venture capital, angel investments are made by individual investors who do not make up a known population. Therefore, much of what is reported about angel investing comes from anecdotes and surveys of convenience samples, which are prone to biases and inaccuracies. Moreover, research on angel investment is plagued by definitional confusion, in which different investigators confound informal investors, friends and family who invest in startups, accredited and unaccredited angel investors, and individual and group investing.

The term "angel" comes from the practice in the early 1900's of wealthy businessmen investing in Broadway productions. Today "angels" typically offer expertise, experience and contacts in addition to money. Less is known about angel investing than venture capital because of the individuality and privacy of the investments.

Thus far the investors network team has been able to collect the following information on angel investors in South Africa.

Click here to read more

06.02.2010 16:34:26

Investors Network Team

As an entrepreneur you will already be aware of the challenges you face when it comes choosing the most appropriate financing for your business.  Insufficient financing is one of the most common killers of potentially great small business start-ups.  Whether an entrepreneur is expanding a business or starting a new one a major choice must be made regarding how to obtain funding. As an entrepreneur or business owner the key starting place will be to draw up a reliable business plan which considers all the issues relating to the business and it's market. Once this is done you will have a clear picture of the financing needs of the business as well as the leverage you will have from a business point of view with which to negotiate with potential investors or lenders.
 

All funding sources will want to see the right people driving your small start-up business.

Choosing Between Debt & Equity Financing
 
Most small or growth-stage businesses use limited equity financing. As with debt financing, additional equity often comes from non-professional investors such as friends, relatives, employees, customers, or industry colleagues. However, the most common source of professional equity funding comes from venture capitalists. These are institutional risk takers and may be groups of wealthy individuals, government-assisted sources, or major financial institutions. Most specialize in one or a few closely related industries. The high-tech industry of California's Silicon Valley is a well-known example of capitalist investing.

01.02.2010 16:06:55

botes

With private equity firms becoming increasingly involved with business financing in both South Africa and abroad we take a look at what this is, what small business owners should be aware of  and the various issues involved in acquiring this type of financing for business.

Private equity funds in South Africa are the pools of capital invested by private equity firms. Although other structures exist, private equity funds are generally organized as either a limited partnership or limited liability company which is controlled by the private equity firm that acts as the general partner. The limited partnership is often called the "Fund", and the general partners are sometimes designated as the "Management Company" (although at times, that is a separate company affiliated with the general partner). The fund obtains capital commitments from certain qualified investors such as pension funds, financial institutions and wealthy individuals to invest a specified amount. These investors become passive limited partners in the fund partnership and at such time as the general partner identifies an appropriate investment opportunity, it is entitled to "call" the required equity capital at which time each limited partner funds a pro rata portion of its commitment. All investment decisions are made by the General Partner which also manages the fund's investments (commonly referred to as the "portfolio").

Over the life of a fund which often extends up to ten years, the fund will typically make between 15 and 25 separate investments with usually no single investment exceeding 10% of the total commitments.

14.01.2010 17:55:55

Investors Network Team

Once you have created a business plan the next key step of course will be to sell your plan and idea to a potential funder. Weather the funder is the bank or an investor, the key thing is that in order to convince them certain issues needs to be mentioned in the plan and you need to be answering the key questions that the investor may have in their mind.

The first and most important issue for any investor really will be, is this business viable? Is this a real opportunity based on facts and is there any evidence, and this can be in the form of marketing research or a number of other pieces of evidence, that shows that the business will generate a return. Although investors will be looking for opportunities for various reasons, a key issue for just about all investors will be the potential return on investment that they can expect or work towards.

There are of course many ways of raising money to fund a company. With the internet and "instant ompanies" as we have discussed in previous articles, you don't need much money to start a company. Many companies you can start with little or no start-up costs at all. There are even many  advertising resources on the internet from classified ads to press releases to link exchanges that make advertising on the internet free. As for print advertisers, many of these are discount.

19.12.2009 14:54:35

Investors Network Team

The launch of our Investors Network Blog halfway through 2009 has proved to be a good move and many articles are continuing to attract large number of readers from both enterprise investors and entrepreneurs alike. Here are top ten articles:

1) What options are there for funding a small business?

Whether starting a new business or growing an existing venture when it comes to business finance its crucial that you understand the options available to you for funding your business.

Equity based finance is of course not the only option when it comes to raising money for your business. Here are a few other options that you may want to consider:

Click here to read the full article.

2) Raising finance for a new business

Raising finance for a new business is often the most challenging task of the entrepreneur. No one enjoys asking others for money (well almost no one) and going hat in hand to your local bank or investment firm is perhaps similar to a trip to the dentist. But it does not to be that hard. Raising funds should be seem as your first real opportunity to see whether you fist of all can communicate your idea effectively an secondly whether other professionals see the opportunity in the same light that you do.

Click here to read the full article.

16.12.2009 15:19:19

Investors Network Team

At a recent meeting with a bunch of new entrepreneurs looking for funding we recorded some of the conversation to help with answering some of the basic questions that many of you may have when starting your business.

The started questions is of course, what are my options when looking for money with which to started my business?

The answer to this question can be found in one of our earlier blog posts by click on this link.

To go into a bit more detail on the various forms of business finance see the questions below:

Q: What are my options for funding if I dont want to go to the bank?

10.12.2009 14:43:54

Investors Network Team

The South African government is increasingly being asked to do more in support of small businesses when it comes to business investment and start-up capital. Although the government is already investing substantially into the small business sector more still need to be done.

The benefits to the government are obvious and difficult to ignore. Small firms provide job opportunities, much needed competition in the key areas as well as of course tax revenue for the government. Investing in new and growing firms is almost a no-brainer for the government and can only help the economy going forward.
Investment is small firms does not necessarily need to be in the form of cash only. Great examples of how this is done in countries such as the US, the UK and Europe where the sme sector is healthy and thriving includes, tax breaks for new firms, popular loan guarantee schemes where the government under writes a large percentage of loans giving out by banks and a reduction in regulations in certain key areas specifically relating to micro businesses.

SINCE 1994, the South African government has invested significant political capital in the support of small and medium-sized enterprises (SMEs). This is because SMEs are recognised as key contributors to both growth and employment, contributing 30% of the country’s gross domestic product and almost 70% of private-sector employment. Government intervention in this sector has included the provision of wholesale finance and nonfinancial support services. The 2005 and 2006 budgets have also given support to SMEs through the tax system, streamlining VAT procedures and raising qualifying tax thresholds for small businesses.

But while there is government support at the company level for SMEs, there is practically no government support for private individuals wishing to invest in small businesses. In many developed economies, private investors are able to take advantage of a range of tax incentives, including an upfront income tax deduction, tax-free dividends, capital gains tax deferral, and so on.

Such individuals may be highly sophisticated professional investors — so-called “business angels” — or less sophisticated investors who prefer to invest in pooled funds managed independently by professional fund managers, as part of a long-term savings strategy. However, both types of investor contribute to the supply of equity finance to small businesses, thus filling the “equity gap” which afflicts SMEs in many economies — namely, the absence of risk capital at a level that is higher than “friends and family” can provide but that is too low to attract traditional venture capital. Further, private investors (directly or through a fund manager) tend to bring much-needed management support, governance, advice and mentoring to small businesses.

In SA it is estimated that there are 37000 individuals with more than R6m in investable assets. The private-equity industry, a vibrant part of the financial system with R43bn in assets under management at the end of 2004, has seen an increasing trend towards larger transactions, a typical feature of private equity across the world. Although a small number of firms, such as Business Partners, are actively investing in small businesses, there is an equity gap in SA (especially at investment size at R5m or less) as there is elsewhere in the world. The focus on increasing the supply of debt finance (for example, through the banks’ commitments under the financial sector charter) merely accentuates the need for equity finance at the SME level.

The question is this: can tax incentives help connect the potential supply of equity finance from private investors with the opportunities that exist in the SME sector, to the advantage of investors, SMEs and the economy?

Click here to read the full story.

Source: http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A204188

09.12.2009 21:49:16

Investors Network Team

The gender mix of South African entrepreneurs have very little difference between them when it comes to numbers of new start-ups. Woman entrepreneurs have made a big leap forward in recent years. But can we compare the funding requirements?

According to a recent report by the Women’s Enterprise Forum, the average amount of money needed to start-up a high-growth business is R1,200,000.

However, what we find is that while male and female-owned businesses both need the same amount of money to get off the ground, where they get that money from differs greatly. Like it or not, the gender divide exists in financing business start-ups and growth as well as in large corporate environments.

Women most often fill the gap between what they need and what they have to finance their business from a bank loan, with over 60% choosing this route. Very few will go and seek outside investment via a business angel or a venture capital firm.

If you go along to an Angels Den meeting or a pitching event, as a woman you are likely to find that that you are outnumbered by about 10 to one. I know of a few meetings where women have turned up to pitch only to find that they are the lone female in the room.

So what's going on here? At the moment, only 2% of the venture capital funds available are invested in women-owned business. Is this because we’re not applying for the funds or because VCs don’t invest in women? I suspect it’s a bit of both.

The Women's Enterprise Forum's recent GROWE (Greater Return on Women's Enterprise) report stated that 17% of women don’t understand equity financing, compared to just 4% of men. This doesn’t surprise me at all as I don’t think there is enough going on in the women’s space around creating conversations about funding and financing, though there is certainly more than there used to be.

It’s great to see that there is more and more going on in this arena to encourage women to find out about investment via equity routes. Astia UK, for example, is a global not-for-profit organisation that has come over to the UK in the last year. There are also some female focused funds starting up, like the co-matching R120.5m Aspire fund, and the second Trapezia fund from Stargate Capital, which is currently seeking investors. Then there’s the female angel investment club, Addidi.

But there are also things women can do to support their own business growth and development:

1. Become more risk positive: women tend to be more wary when it comes to financial risk in a business context and while this makes them safe, it can also inhibit their growth potential

2. Build a strong team: find people, both internally and externally, who can help you to grow and take your business to the next level

3. Learn the language of finance: Become familiar with the options available and seek expert advice

4. Think BIG

If anyone is interested in finding out more about financing your business growth, a great resource is the South African Investors Network.

Julie Hall is the founder of Women Unlimited, a network for female entrepreneur

07.12.2009 11:48:37

Investors Network Team

When starting a business, getting enough to start with may often be the biggest challenge. In the current economic climate especially the task of finding the right finance fro your business may be a challenging one. Apart from putting an effective business plan together, which can be done quite easily using the latest business plan software,  the key to any entrepreneur looking for start-up capital will be the get the right deal with which to start the business. Whether you are going to the bank, or choose to use venture capitalists and business angels, the task may seem daunting.

Nevertheless hundreds of thousands of individuals start businesses each year. How do they do it? Where do they get the money to get started? Here are ten solutions for startup funding for a micro-sized business. Some are nearly risk-free. Others involve significant financial risk and should be used with caution. If you need a steady source of income to meet your financial obligations (and keep your family covered by health insurance) start the business as a part-time venture. Don't quit the day job until the part-time business has a steady flow of customers and profits.

27.11.2009 21:56:53

Investors Network Team

I've been involved with a number o f businesses and finally I've found the the recipe for success when investing in start-ups

Veteran entrepreneur and now business angel shares his experience on getting his kicks from investing in new businesses.

For me, there's nothing like it--the excitement of seeing a business rise up from nothing. I can't even explain the feeling. There's just something unbelievably thrilling about seeing the growth, watching the numbers go up, getting the business to stand on its own. I've done it myself a number of times, and I can't get enough of it.

And now I'm having the same experience with David's business. I'm seeing it all unfold through his eyes. I see the same spirit, the same perseverance. I know exactly how he feels, coming home at night, not being able to sleep, thinking, "Oh my God, 145 meals! I broke a record!" You can't wait to go back and set another one. It's incredible. It's the greatest feeling in the world.

It's also one of the greatest payoffs you can get as an investor, or so I've realized. Yes, making money is important. I wouldn't go into a deal unless I thought I could get my capital back and earn a good return. But I really don't do this type of investing for the money anymore. I'm more interested in helping people get started in business. Whatever I make is a bonus on top of the fun I have being part of it and the satisfaction I get from helping people like David succeed.

I wish only that I'd figured out how to play this game sooner. It's taken me 25 years and a lot of bad deals to get it right. Not that there weren't opportunities to make money along the way, but somehow they got screwed up. Even when I did make some money, I seldom felt good about it, and I never had much fun. Something always came along to spoil the experience.

In the process, however, I developed a few rules of angel investing, which I've finally been able to bring together in one deal. They may not be right for everyone, but at least they've allowed me to find what I've been looking for all these years.

Rule 1 ?Invest in people who want your help, not your money

If I'm going to invest in a new venture, I want to play a role in its success. I come in as a partner, and I expect to be treated like one. Not that I want to run the business or make the key decisions, but I like my opinions to be heard. That means investing in someone who wants to listen. The problem is, people always come across as good listeners when they're asking you for money. So I prefer to give my financial support to those who don't expect it.

business angels | Angel Finance | business investors | business investment | angel investors

25.11.2009 15:23:43

Investors Network Team

“South African businesses currently unable to find the credit they are looking for must look for alternative avenues of business finance. “ That was the recent message at a small business finance indaba recently held to find solutions to the many entrepreneurs and business owners looking to start or grow their businesses in 2010.

Cape Town – November 2009

Credit remains tight for small businesses across the country, despite a public relations boost from many of South Africa’s leading banks declaring that they are open for business and keen to support small business owners in the country. Despite the numerous government incentives and initiatives supporting banks that are still risk averse after the recent international banking crisis, and even with new lending initiatives from intuitions like the IDC, business owners still face incredible difficultly qualifying for credit and obtaining the funding they need.

“What we are seeing here is a bunch of sound bites created by the commercial banks who are merely pretending to pay attention to Main Street’s needs to gain political capital,” said John Stewart who lead the recent conference in Cape Town. ”The billions in loans offered to alleviate the credit crunch is not going to help many small businesses that are still struggling with the down economy and do not have the financial strength to meet the stringent lending criteria of these banks.”

business funding small business fin | business financing

21.10.2009 21:35:08

Investors Network Team

When recently sitting on a panel discussion on business finance for small business we were discussing the types of businesses and the sources of finance available to them?

There were a number of business angles on the panel as well as numerous venture capital firms represented. The discussion was initially about the types of businesses commonly found in the South African economy. Most small businesses are life-style firms.  They may be operated part-time or full-time, but will not, as a rule, exceed R1 million per year in sales. These businesses are entered into by entrepreneurs who are seeking to make a living or control their own destiny by operating a small company with a modest business plan.  Many of these firms are limited in their ability to grow by the market their products and services seek to satisfy.  A number of these life-style business owners often grow their firms to a certain size and choose not to expand any further, regardless of the potential.

business funding | business financing | business finance

16.10.2009 13:34:36

Investors Network Team

Finding money for your new or growing business can feel like a long dark tunnel with no light at the end of it. As exiting and exhilarating the process of starting and running your own business is, when it comes to writing a business plan and looking for small business funding or business capital few would disagree with the fact that its something entrepreneurs would rather not have to do. But finding money for your business is of course important and often there is little choice involved once you are committed to the business or idea. From the numerous books, blogs and how to essays, this piece from legendary business angel, business incubator creator and all round new venture enthusiast and supporter Paul Graham is really one of our favourite reads when it comes to raising finance. Do yourself a favour and take a few minutes, make a few notes and get active to find the business finance you are looking for.

business capital | small business funding

09.10.2009 18:22:50

Investors Network Team

Once the business plan has been finalised, the first stop considered by most new businesses when looking for Business Start-up Capital (banks), Angel finance will normally be the next port of call. Despite this fact, few entrepreneurs really understand what Angel investors look for and expect from businesses in which they potentially may invest. The fund raising process is becoming ever more competitive and being able to meet investor requirements the first time around will increase your likelihood of raising the capital you need.

After a recent Bos Beraad, mostly attended by angel investors, the issue of what Angel Investors look for in companies that they fund and what the various processes they go through when assessing entrepreneurs was discussed.

Most of the investors present agreed that the recent economic down turn resulted in them re-assessing the way they both look for and asses the businesses they get involved with. This does not mean that they are not still very actively looking for investable businesses. As also discussed in a number of previous meetings it was obvious that most investors seem to have a clear goal of how much they wanted to invest each year and what the returns were that they expected from their investments.

Angel Investors typically invest anywhere from R200,000 to R2 million, preferably in a first or second round funding, for which they normally will acquire around 15-30% of the company depending on the structure of the deal. The Angel Investors are often successful entrepreneurs themselves who are able to offer significant strategic value to the company in addition to the financial capital that they are providing. All the panellists agreed strongly that the strategic value that they can provide is often times more important than just the financial capital.


What do they look for?

business funding | angel investors | Business Start-up Capital

08.10.2009 18:06:31

Investors Network Team

Most people see Business angels as those lucky types with enough cash to consider investing in early-stage businesses. If you’re looking for a third party to inject cash into your business, the first question you have to ask is: how much ownership of the business are you prepared to give up?

Ben Botes, co-founder of a South African based business planning and growth consultants, SA Business Plans, comments that: ‘Many businesses look for debt finance in the first instance. But the bottom line is that if you don’t have assets, you’re not going to get any finance.

‘Business angels tend to be seen as the last option because people are reluctant to give away any equity. But you have to be sensible and ask yourself which is better: owning 100 per cent of nothing or 50 per cent of something that’s worth R10 million?’

Speaking to investors

angel capital | Angel Finance | Business angel

05.10.2009 20:06:57

Investors Network Team

As a new or growing business looking for angel finance or venture capital you need to be prepared for finding a funder prior to that actually happening. To often do entrepreneurs look for business funding without actually thinking that they may get it. So what is that you need to be prepared for and once you have chosen the individual investor or VC firms that you want to wrk with, what will be covered during the negotiations? The key to successful negotiations for venture capital is in the details of the issues coverd. These issues which need to be well defined and agreed upon will normally be as follows:

Business Valuation. The value of the business is normally the the first negotiating issues. Valuation or the price of the company in which the venture capitalist invests, most often will be very different depending on who you are asking. Valuation determines what percent of the company the investor is buying for their capital. Obviously as the entrepreneur who have put many hours, heaps of effort and often much of his/her life savings into the initial development of the business, will value the business at a much higher level than that of the venture capital firm who;s aim it will be to get as large a share of the business as possible for the money they are willing to invest.

Business angel | venture capitalist

02.10.2009 14:55:27

Investors Network Team

When looking for funding, entrepreneurs may often become confused with the various funding sources available. With the term Venture Capital becoming an everyday term for business finance in some circles its important to distinguish between venture capitalist, business angels and other types of business finance providers.

A venture capitalist(VC) is a person who provides equity financing to companies with high growth potential. The money that a venture capitalist invests in a company is called venture capital. Venture capital firms are often limited partnerships that comprise a few venture capitalists. Each venture capital firm manages a venture fund, which is often comprised of a large pool of money--anywhere from R25 million to R1 billion--that the firm invests in growth companies. A venture capital fund consisting of third-party investments can finance enterprises that are too risky for debt financing. Each VC firm invests in several companies and this group of companies is called the firm’s portfolio companies or portfolio.

Most VC firms have different kinds of executives: general partners, limited partners, venture partners and entrepreneurs-in-residence apart from associates and office staff. General partners are the primary investment professionals in a firm. General partners collaboratively manage the firm’s venture fund. Limited partners are the individuals who invest in the venture fund. Venture partners bring in deals and receive income on deals they mark. General partners on the other hand receive income on all deals.

Venture Capitalists | VC | venture capital | Venture Capital in South Africa | SA Venture Capital