“I’ve registered a company with the CIPC and a consultant helped me draw up a business plan. Can you help me with funding?” This question was asked by a wannabe business-owner at FundEx who didn’t know how much she needed or even what she needed it for. Small business owners were invited to FundEx to learn about the numerous funding opportunities available and to meet a broad spectrum of funders, like the National Empowerment Fund (NEF).
Unfortunately, when one reads that “the NEF had approved over R3 billion for black-empowered enterprises countrywide, in various economic sectors” it can send the wrong message about funding for SMMEs.
Not every SMME needs funding. Does your small business really need funding to help it grow? Clive Butkow, of Kalon Venture Partners recommends that, before looking for finance the business-owner should “use customer funding, it is free.”
use customer funding, it is free
If your business does need funding, you can get venture capitalists (VCs) to take a minority equity stake in your business. They will help you to grow your business, then exit (sell their share) for, hopefully, 10 times what they invested.
But before they invest, they want to see that a robust management team running the business. “The founders must be ‘teachable’, must have charisma, curiosity, conviction, communication skills, and integrity.”
Dov Girnun of Merchant Capital agreed on the necessary characteristics of the business team. In addition, he urged “Know your numbers backwards. Know your market well.”
“Two out of three small business owners are turned down when they apply to financial institutions for funding.” That’s because banks are not set up for investing in small businesses. “We look at alternate methods for evaluating the business.” They focus on the established retail SME market as it is easier to measure turnover. Merchant Capital doesn’t take equity in the business, they provide working capital to grow the business, and then take a percentage of future turnover.
Vusi Thembekwayo’s model is also quite different. MyGrowthFund‘s mission is to build 300 sustainable businesses by 2030. They intend to achieve this by finding and nurturing high-growth entrepreneurs through funding, incubation and enterprise development. Developmental impact, especially in townships and rural areas, is key to the success of this fund.
first published in SME South Africa
There is one consideration that is often overlooked when a dedicated entrepreneur looks for finance. If you are passionate about your business, ask yourself: When do you intend to sell your business? If that event isn’t on your horizon, then you might not want a venture capitalist to take equity in your business.
After about 5 years, the VC expects to be able to sell their share of your business for about 10 times what they paid. The buyer may want your whole business and may want you to stay on to hand it over or they may want to merge your business into one of theirs. Consider this: is your business built to last or built to exit?
If you do need funding, you may be confused by all the different offerings available. That’s where Darlene Menzies’ FinFind comes to the rescue. This online tool matches businesses with the appropriate finance based on the information that the entrepreneur enters. FinFind will find finance options that you might not even have been aware of. What a pleasure.
Click here if you want to discuss discuss funding for small businesses.