Last month I shared my story on how I started BitPesa, a payments company headquartered in Kenya with operations in Nigeria, Tanzania, Uganda, the UK, the DRC and Senegal. Fundraising is key in starting any business, and I pointed out how important the pitch is in the fundraising process.
This week I want to talk about the Dealroom, and more specifically, how to make sure you’re organized and on target. Then I’ll wrap up with pointing out knowing the right people to target.
Once you have the investor’s attention you do not want to lose it. It’s very important to have a good dealroom. The best dealroom is everything the investor wants to know about the company in depth. If you are an early-stage company, you may not be expected to have more than the pitch, but if you have run a business, you are expected to have more information. The pitch is the 1st part, but the dealroom is the facts, the figures, and the research. You need to be able to back up what you say. I like to use a shareable database on a shared environment. We use Dropbox but you can use Google Drive or what works best for you. That way, you can share the link in advance before a meeting and avoid delays.
1). Take time to create a thorough 10-page or less business plan – This is the part you describe your company in detail. This includes your team biographies, what you did before this and what makes you unique in solving the problem. The bigger picture analysis should be in the business plan.
2). Compile a Profit & Loss with historicals and projections – Your business plan is qualitative and your spreadsheet is quantitative. Be sure not to overestimate your projections. If you are already running a business, you should have very clear records of what your company has done since it began. Don’t say that you’re going to grow your business by 200% in the next six months unless it’s within reach. This is the first thing an investor will ask: Are these projections realistic? Are they too big or too small? Take the time to think about what you can actually do.
3). Complete the story with research and marketing samples – You can now flesh out the story with research. Get a focus group together to test your product and talk about the experience. Ten is a good size, for instance. Film it, document it, and get some answers in a survey and put this in your deal room. This goes a long way in helping your case.
4). Get your legal documents in order – If you pay taxes you will need your tax ID and company registration, among other documents. These need to be shared in a legal folder that you don’t share with anyone, but legitimate investors who need to see this information.
5). Update your Cap Table and learn it by heart – This is the Capitalization table and should be in an Excel spreadsheet. To see what a Cap Table looks like, simply Google it. It shows how 100% of your company looks like and how is it divided? For example, do you own 75%? Does your partner own 25%? Does your rich uncle own 10% of the company because he gave you a loan? Do you have investors? How much of the company is owned and how much is left? Once you bring in a new investor you will be “diluted.”
There are some horror stories of Nairobi companies giving shareholding to new investors, which was already given out. There were two investors thinking they owned 50% and the founder of the company thinking he owned 50%. At the end of the day, this presents a troublesome situation, so be thorough with the information and make sure it is all in the dealroom.
Know Who To Target
You have to make sure you use your time efficiently and that you are talking to the right people. It’s key in knowing how to communicate your company’s story, knowing what your vision and reach is, knowing all the global regions, and understanding investors.
1). What does your story communicate? – Earlier BitPesa was thought of as a “social company.” A lot of African companies get labeled social companies and there are a lot of investors that are social. Social Impact means that a company may focus on: agriculture, health, financial inclusion, female empowerment, electrification or renewable energy. These are the kind of things that social investors look for and want you to show that you have an impact. Make sure your story communicates to them.
2). What is your vision and reach? – Know your vision and reach so that you know which investors to reach out to. Find out what the investor’s thesis is before you share your information. Some investors invest in everything; some investors invest only in emerging markets or Africa; some investors invest in big data companies, or in robots or in real estate.
3). NYC, SF, London, Asia and South Africa are different – You really need to know the different types of investors that are in these different places you are going. San Francisco is more technology focused and has more tech investors. Asia has more corporate investors and South Africa has smaller SME digital media marketing investors.
4). Understand sector, regional and social investors – You have to understand the sector, the region, and business type.
5). What stage investor do you need? – In addition to knowing the sector, region and social investors, it’s important to know what stage investor you need. Some investors come in at the seed stage — they want to get in first because that is when they get the best deal for their money while taking a big risk. Growth-stage investors will come in with a bigger funding as they want you to be profitable and with traction. You have to find the right fit.
I will share more tips in the last article in the series next time. Let’s keep sharing and learning.
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Elizabeth Rossiello is the CEO and Founder of BitPesa, the largest African digital currency FX and Payments company. BitPesa was founded in 2013 and has since launched operations in 7 countries. See the venture profile for more details.