Financing

Asking Potential Investors the Right Question

We have shared with you tips on how to get investment ready, how to select the right investors; and now we will share with you questions you should be asking potential investors before you take their money.  Here are 15 questions you should be asking your potential investors  What types (or focus sectors) of companies have they invested in, in the past? What kind of support do you provide to these companies? What kind of investments (in terms of value and round) do you provide?  How many investments have you made in a company? Do you typically lead investment rounds? Or do you prefer to co-invest? How many investment rounds have you led? How long does it take to close? What is the first thing we need to do after closing? What do you expect from us going forward if you invest in our company? Will you be personally involved in the company? What metrics would you be tracking? How often would we be required to provide progress reports? What is your most successful investment? Are you willing to share the contact information of 2-3 companies you have invested in? These are questions that should guide your decision-making on whether the investor is the right fit for your company and for you. But most importantly make sure you listen to your gut feeling and ask any other questions that arise from within.  Contact Versa Research your trusted data, research & consulting partner! References https://www.forbes.com/sites/alejandrocremades/2019/02/21/20-questions-entrepreneurs-should-ask-investors/?sh=1c1988d97670

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What Investors Look for in a Start-up

A start-up needs investments in order to reach out to its numerous customers especially when the demand for their product or service is high. The major reason for investments in start-ups is the steady growth experienced. Start-up founders need to understand that an investor is not a friend but an enabler with financial capability to help sustain the growth of the business, who in turn expects to get returns in the form of dividends or equity in the overall stake. Investments in a start-up could be by a venture capitalist, financial institution, crowd funders, family and friends, corporate investors and government organizations. Why Cash Flow for A Start-up Is Better Than Profit Start-up Founders are usually trapped in the need to begin to make profit and might wear themselves out when business does not look profitable. Profitability is not the most important factor to measure the growth of a start-up. Every investor understands that to classify a start-up as ready for investment, it has to show steady cash flow in their financial statements, which is the primary check to showcase the healthiness of the business. Determinants of Start-up Investments Team The success of a start-up depends largely on the team and most especially the experience and expertise they bring to the organization. Start-ups are very fragile and therefore risky to invest in. However, with a qualified team whose portfolio reflects a level of experience and exposure in a similar role or organization proves to the investor that decision making would be properly done and tasks executed with precision. A great start-up team is usually  a team that has knowledge of product development and management and also the ability to connect with people in order to sell the products. Traction Traction is the metric to measure the growth of an organization. How many sales have you made within a specific period of time? How many downloads? How many customers are being served? Traction represents the overall cycle of how deepened the dealings of a business has fostered consistent growth with the customer. The tractions are usually represented in charts to display the gradual progression. Licenses Investors are concerned about the level of work that has been done by the start-up founders and these can be shown in obtaining the necessary licenses, intellectual property and compliances to enable the smooth running of the business. Investors want to ensure their investments are secure and would seek a level of understanding in ensuring that the necessary regulations are being adhered to. Risk Management Policy Investors like to know what the next line of action would be if the plan does not go as expected, it could also be that the plan is executed as expected but then the business experiences difficulty, what would the next line of action be in order to continue to stay in business. Risk could range from personal risk, financial risks as well as health and safety risks. Your Competitive Advantage Investors are aware that there are other existing businesses like your own, one of the ways to showcase that a start-up is ready for investment is to leverage on what makes you better, amplify it in your promotions and show measurably how it has helped to create exponential growth better than your competitor. Bear in mind, that alongside the factors mentioned, the start-up founder with a good portfolio is the capital reason for making capital investment. Without strength of character, staying power, grit, tenacity and resilience, investment in a person might not suffice. Read Also: How to be Investment Ready

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A Start-up Guide to Tax

Tax is a compulsory contribution levied by the government. Taxation is important in any economy and its effects remain significant because it helps greatly in the redistribution of income and gives the government funds that it can use to finance public services such as the provision of adequate national security, public infrastructure, power, good road network and a host of other social amenities. So, it’s important for you to pay your taxes. Whilst there are different types of taxes, we will focus on those you should know and pay as a small business. Companies Income Tax: The Companies Income Tax (CIT) is a tax imposed in Nigeria on the profits of registered businesses. It also includes the tax on profits earned by foreign corporations doing business in Nigeria. Limited Liability Companies, including public limited liability companies, pay the CIT. Non-residents are subject to CIT on their Nigeria-sourced income, while resident companies are subject to CIT on their worldwide income. Corporate income tax is calculated using accounting profits that have been taxed. For companies with a turnover of more than N100 million naira, the CIT is currently charged at a rate of 30%. For companies with a turnover of between N25 million and N100 million, it is also charged at a 20 percent rate. The tax is calculated using data from the previous year (i.e. tax is charged on profits for the accounting year ending in the year preceding assessment). According to the Finance Act 2019, companies with a turnover of less than N25 million are exempt from paying company income tax. A non-resident company with a fixed base or a permanent establishment (PE) is taxable on the profits attributable to the fixed base in terms of business profits. As a result, it must register for CIT and file tax returns. Value Added Tax: It is a consumption tax that is levied on a product or services whenever value is added at each stage in the chain of production to the point of sale. It can also be said to be an indirect tax placed on the domestic consumption of goods and services, except for those that are zero-rated (not liable to tax), such as food and essential drugs, or goods or services generally exempted by law. This means that any person or individual, corporate or sole organizations that consumes or buys any taxable any taxable product or service will have to pay VAT. In Nigeria, the average VAT rate charged on the purchase price of certain goods and services is 7.5%. As soon as you register your business, whether as a company or a business name in Nigeria, you are expected to start filing VAT returns. VAT is paid by your customers on whatever money they pay you for your goods or services. Where a business does not earn revenue in a month, or hasn’t started operations, the business is expected to file a NIL return, i.e., you go to the FIRS office nearest to you and fill a VAT returns stating that you made no earnings that month. Stamp Duties: Under the Stamp Duty Act, stamp duty is payable on any agreement executed in Nigeria which includes those relating to any property situated in Nigeria. It is chargeable either at fixed rates or in proportion to the value of a transaction or a property, depending on the class of instrument. Where you prepare documents bordering on deed of assignment of a property, memorandum and articles of association of a company, and legal mortgage, ensure that you have them stamped. It is important to do so because it ensures that these documents are admissible when they are tendered before any law court in Nigeria. There are agencies in the 3 tiers of government who collect and enforce taxes. At the Federal level, there is the Federal Inland Revenue Service (FIRS), at the State Government level, there are the respective State Boards of Internal Revenue (SBIRs) of the thirty- six states of the Federation, one of which is the Lagos Inland Revenue Service (LIRS). Local Governments also administer rates and levies collectible by them through their various councils. Tax is a very crucial component of business that every start-up should be aware of, which is why it’s fine to seek professional advice from a tax expert who can them through the process. We advise you do the same too. Read Also: Registration of Micro, Small and Medium Enterprises (MSMEs) for tax purposes Read Also: Key things to know about the Nigerian Tax System  

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How to Reach the Right Investors

As an entrepreneur, you may have the investment teaser deck, and know the profile of investors you are looking for but you may still struggle to source the investor. Sourcing investors is one of the most critical parts of securing funding from an investor.  In this article, I will share with your some tips on where to source the right investors that will provide you with the resources to grow a sustainable and scalable business: Join incubator and accelerator programs as this gives you and your venture visibility Join Angel networks and communities Be a part of support organizations’ communities Join associations that relate to your industry Reach out to Universities with strong business or entrepreneurial programs Reach out to your current network and see which connections they have  Use Linkedin to search for investors and view their profiles Network with other investors that might not be right for you, as they can connect you to others Research your competitors and identify who their investors are  Create a profile on online crowdfunding or investment profiles Attend events and conferences related to your sector of focus Host events Identify where the ecosystem congregates and be there Put yourself and your skills out there by being a mentor to other new entrepreneurs With this, you can create an investor target list where you highlight their contact details, past investments, connections you have in common if applicable, where they are based, where you found them, why they are a good fit for you, and any other relevant information. Remember that the role of your investor is to provide the expertise, network, and investment to help make your business sustainable and scalable. Contact Versa Research your trusted data, research & consulting partner!   Read Also:  How to Select the Right Investors

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How to Leverage Story Telling for Your Business Pitch

There are a number of reasons a business needs investments, these investments could be in the pre-seed, Series A or B and regardless of whatever stage the business is operating, the major reason for seeking investor’s funding is usually for expansion purposes. This expansion could be in the line of products or the need to serve more customers in their growing numbers due to exponential demands. Why Storytelling? Story telling has been found to be the underlying magic when pitching to investors. Effective story telling has to be genuine and linked to the WHY of the business i.e. the challenge the founder(s) were trying to mitigate when they set up. It also has to be told with clarity backed up with research-based statistics on prospective customers that are in need of such solutions. Highlighted below are the key elements of a Pitch Deck The Pitch Structure The pitch deck structure while different in the pieces put together as templates by different businesses, should still have the most essential ingredients and answer the potential investor’s questions. These items in a pitch deck should be on each slide Cover Page The cover page is a basic design that captures what the organization does. Usually the logo of the organization and the tag line, which serve as their value proposition to clients. The cover page should be very simple in design and text. Introduction The introduction is the executive summary of the pitch deck. All the parts in a pitch deck should follow a simple rule “less is more”. The Pitch deck should have very limited words and should be clear. Problem State the problem in a very clear and concise manner. This slide should capture in bullet points the problem your business is trying to solve. Solution The solution slides need to state the function of your product or service as it addresses the problem you have stated. Try not to get into mentioning features as what is important here is how your product will benefit customers. Product Demo If you are making a physical presentation, your product demo should be in a video of 30 seconds or less about how your product or service functions to provide the solution. If you do not have a video, then a pictorial view of images can also be used to represent this. Market Size You can adopt two approaches. You either take the top-down or bottom-up approach. The top-down approach is to find out the size of the market and estimate how much of that size you think you can capture. I think the top-down helps to be more realistic as what you hope to capture can either be expressed in years or in the lifetime of the business. Business Model What would your business model be? Are your products going to sell for a particular price? Would your customers have to subscribe to it weekly, monthly, or daily? This is what your business model represents. Some social media platform runs on a freemium model where users do not pay to use such platforms; however, the platform then makes money from advertisers wanting to gain visibility from this number of users for their products or services. Competition List your competitors whether they are direct or indirect and mention how you are better than them. For example, the indirect competitor for a carbonated drink is water and most bottling companies have succeeded in making their products a unique alternative to water by serving a refreshing taste. Mention here what makes you stand out. Go-to-Market When you launch a new product, it is necessary that a market plan exists; it helps to answer the question of how you would acquire customers. What steps are you going to take for customers to engage you? Would you have a direct market, use radio or television, social media, sponsored adverts, print, etc. to reach out to your targets. Team Your team information should display competence. Most start-ups have a product developer and a marketing officer. This can be seen in the likes of companies like Apple where Steve Jobs is the Chief Marketing Officer with communication prowess and ability to get customers to buy while Steve Wozniack was the developer. 2-3 team members can be the founder or co-founder and launch the start-up and add other team members as the organization grows. Milestones Investors only want to make a contribution because they look forward to returns on their investment (ROI), no investor is your friend. This is the section where you show your traction in the form of partnerships, number of downloads, and most importantly that you generate consistent cash flow and serve a good number of customers Fundraising Information How much funding would you need and in what ways are you going to apply the funding you get. What this funding injection would generate within a specific timeframe. These are questions you want to answer in this slide. Funding is usually needed for operational costs such as rent, staff salaries, office equipment, licenses or certifications, and many more depending on your business needs at that moment. While receiving funding for your business is a great move, it can also lead to the death of start-ups as initial exposure to huge funding without experience or the ability to manage such funding could lead to instant gratification. This is why some start-ups have raised funding but are not profitable. I suggest that a business proves through its financial statement to be profitable enough before seeking funding in order to grow a sustainable business model.   Emmanuel Otori has over 9 years of experience working with 100 start-ups and SMEs across Nigeria. He has worked on the Growth and Employment (GEM) Project of the World Bank, Consulted for businesses at the Abuja Enterprise Agency, Novustack, Splitspot, and NITDA. He is the Chief Executive Officer at Abuja Data School.

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How to Write a Winning Executive Summary

There is no set structure for an executive summary, but there are guidelines you must follow to ensure your business plan or investment proposal gets the attention it deserves. A well-written executive summary needs to contain the following elements, among others: Vision – What problems are you trying to solve? What are your guiding principles? Mission statement – What’s the purpose of your venture? Business model – What’s the rationale of how you create, deliver, and capture value? How will you create value? Who will you create it for? B2B, B2C? How will you generate revenue? How capital intensive is your venture? Describe your product or service – Does it meet customers’ needs? What are its key attributes? Products – function, durability, installation, ease of use, packaging Service – function, environment, reliability, responsiveness, availability, usability Retail – product offerings, ambiance, decor, layout, location What are the benefits of the product? Quality – durability, reliability Good service – on-time delivery, maintenance, tech support Efficiency – ease of use, greater output, less waste Convenience – flexibility Cost savings When you’re trying to sell an idea to a potential investor, you’ll need to craft the pitch-perfect executive summary. The tips above will show you how to write one that will get your business plan read and get your foot in the door.

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How to Select the Right Investors

At this stage,  you have created your investment teaser deck, but now you are trying to identify which investors to reach out to. The first thing to remember is that the role of your investor is to provide the expertise, network, and investment to help make your business sustainable and scalable. As an entrepreneur, it is very important to know what profile you are looking for in an investor and how to attract the best kind of investors. It is okay to be picky, in fact, it is essential that you are picky and do not accept funding from just any investor who provides it.  In this article, I will share with you some tips on how to ensure you are selecting the right investor that will provide you with the resources to grow a sustainable and scalable business: Your investor should be someone you enjoy working with – not necessarily your friend, but someone you have a cordial working relationship with Your investor should be knowledgeable about your industry  Your investor should have some knowledge in entrepreneurship and/or funds raising Your investor should have a track record that is evident in their portfolio Your investor should have a track record for investing in businesses such as yours, industry, or the stage of your business Your investor should have a strong network  Your investor should be clear on why they want to invest in your business Your investor should do thorough due diligence on you and your business Your investor should bring diversity to your investment group Your investor should bring an appeal that will draw other investors to your business An extra bonus is finding an investor that has a reputation for providing multiple rounds of investments. Selecting the right investor for your business can make or break your business. Do not feel pressured, do not feel rushed. Take your time, keep the conversations going until you are confident you have found the right investor. Contact Versa Research your trusted data, research & consulting partner! References https://carta.com/blog/how-to-choose-investors-for-your-startup/ https://www.forbes.com/sites/alejandrocremades/2018/09/30/how-to-find-the-right-investor-for-your-startup/?sh=4ca39e327b82

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How to be Investment Ready

Research has shown that in Nigeria, 80% of businesses fail within the first 5 years, and out of the 20% that make it past 5 years, just 25% of them make it to the 10-year mark.  Being an entrepreneur in Nigeria myself, I can list out many different factors that affect the success of a business but one of the most important ones in our climate is access to funds. Having little capital is difficult to build scalable and sustainable businesses.  But another challenge could be not having the right network to help scale your business. Both these reasons are why entrepreneurs seek investors. Investors provide the expertise, network, and investment to help grow sustainable businesses and help scale these businesses.  Seeking investors, however, is very challenging and overwhelming for many. You have to first off know the type of investor you are looking for (for example, a banker, angel investor, crowd funder, venture capitalist), the profile of the investors you are seeking, and what these investors are looking for. With this understanding out of the way, you can then work on ensuring your business is investment-ready before you approach them.  In this article, I will share with you some tips on how to be investment-ready Solid Financial Analysis: you have to show your investors that you understand your numbers. Understand your past performance, your current performance, and your future projected performance (at least for the next 3 years). Show that your assumption is justified and your projected performance model is flexible and dynamic enough to account for changes in your assumptions. You should also create a solid revenue model that shows investors the path your business will take to make money. Market Strategy: no investor wants to invest in a company that is targetting a very small group of people who do not have strong purchasing power. You will need to show your investors that you have researched the market size of your business and you have a clear go-to-market strategy. You also need to show them that you have created some kind of traction within the market. Exit Strategy: as you have seen within the start-up world, people do not start a business without an end goal in mind. You need to identify your end goal; is it a merger or an acquisition or an IPO. Identify your end goal and be able to justify why you want this goal.  Strong Team: investors are less likely to invest in a one-man business (nor a sole proprietorship). Ensure you have people that believe in your vision and are inspired to join your team in the role of a co-founder or partner. Be careful when picking your co-founders or partners, ensure they have the same values, goals, and vision as you for the business.  Clear Ask: you have to know and be very clear on what you are asking the investors for, it could be one or more things but be clear. Is it money, access to their suppliers, distributors, network, and so on? Be able to clearly tell investors what the valuation of your company is. The tricky part about valuations is that there are different ways to calculate your business’s valuation, choose the best way, and be able to justify it.  Once all these 5 pointers are clearly defined and understood, you can now create an investment teaser deck, which is a deck (presentation) you send to investors explaining to them the above and why they need to invest in your business. You need to also have supporting documents and evidence. And most importantly you need to be proactive and prepared.    Read Also: Growing the economy: Attracting investment to Nigeria through franchising  

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Tips – Pitch Perfect!

“If you can’t explain it simply, you do not understand it well enough” – Albert Einstein Einstein said it perfectly! Pitching your business idea to a 3rd party is when you give a clear understanding of your idea, plans, and goals so as to get their buy-in. This 3rd party could be a potential client or a potential investor. Your goal is to communicate clearly and enthusiastically to motivate and persuade so as to turn your vision or idea into a reality.  Before you get to a pitching session, you must do your research. You must first research the potential investor or client; learn more about their likes and dislikes, their needs, pain points, the kinds of ideas they invest in, the relationships they have with the businesses they invest in. You need to understand the market opportunity of your idea, your target audience, your product-market fit, your value proposition, your financials, and most importantly your exit strategy.  As you are preparing for your pitch, here are 5 things that are essential for you to do to win the pitch  Story Story: Tell a story! Using the active voice, your idea should be in the format of a story. The storyline could be aligned with the problem and need your idea is solving or filling.  Implement the KISS strategy: Keep it stupidly simple! Use short sentences and familiar, everyday words but don’t stray too far from investor lingo (eg minimum viable product). Ensure you have visuals, people understand better when they can see, but keep these visuals simple.  Facts & Feelings: Quantitative as well as qualitative data. You need to show the data, it is essential. However, do not forget that emotions play a big role in decision making so use language and metaphor that will stir their emotions.  Mystery: Do not give all the information at the beginning of the presentation. The brain craves anticipation so give teasers that will keep your audience interested and wanting more in the beginning. Repetition: The more you repeat something of importance, the more likely it is to be remembered. Repeat information (your company name, your name, your idea) as much as possible so it is remembered.  Pitching can be a daunting experience; mainly because we place so many expectations on it. As long as you know your idea and pitch audience inside out, you can clearly state the market opportunity of your idea, your target audience, your product-market fit, your value proposition, your financials, and your exit strategy, and are prepared; go in, have fun, and don’t put too much pressure on the experience.  Contact Versa Research your trusted data, research & consulting partner! References https://www.indeed.com/career-advice/career-development/business-pitching https://online.hbs.edu/blog/post/how-to-pitch-a-business-idea

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How to ensure Financial Interventions are Effective

In the history of providing financial interventions for the Small and Medium Enterprises (SMEs) in Nigeria, a mix of funding in different areas, to support the textile, manufacturing, agriculture, pharmaceuticals, and housing sectors have received a boost to ensure the growth and sustainability of these industries in order to reduce the burden and effects of unemployment in Nigeria. What comes to mind is that the support provided for these small businesses should produce a cumulative effect in job and wealth creation as well as contribute to National and Economic development by moving most Nigerians out of the poverty line into the empowerment line. However, there are concerns about whether this very goal is being achieved and brings us to clearly evaluate whether there has been an improvement in the activities of SMEs or not. Here are procedures to follow in order to ensure that government interventions are properly utilized. 1. Conduct an on-site verification of SMEs The sustainability of any financial intervention is based on the authenticity of the existence of an actual business. Due to the fact that most SMEs would like to benefit from any ongoing intervention, they do everything possible to qualify for funding opportunities and some do not have an existing business. When they receive the funding by establishing a miniature business to look like an existing one, they take the funds and misappropriate for their personal lifestyles. 2. Audit of their financial statements The healthiness of a business can be determined from its financial records. There are important records to look out for when auditing a small business. They are Cash flow statement Balance sheet Profit and loss statement A business with these financial statements that are generated based on Proper day-to-day recording of every single transaction shows that their ability to gather useful data and pay attention to happenings around their business is important and this is a major criterion before receiving funding, especially recent financial statements of between 3-6 months. 3. Business Development Training Certified business development professionals with a deep understanding of the metrics to track what improvements need to be made in a business to make it competitive should be recruited to work with a number of prospective beneficiaries of financial interventions and note what challenges they are facing. The reports for each business would then be the framework to release financing after evaluating the needs of such businesses rather than giving out an equal amount to all beneficiaries. 4. Funding Should Be Given Based on Performance Implementation of the solutions to the challenges found should be made into phases, this is to enable the release of funding to solve a certain challenge in the business per time. A good recommendation is called “Payment by Result (PBR)” which means until the organization produces the expected result of solving a particular challenge in their businesses, they would not qualify for another round of funding. These measures would enable the expectations of creating jobs and proper utilization of the funding to be achieved. Emmanuel Otori is the Co-founder at Abuja Data School and has had over 8 years of experience working with over 50 SMEs across Nigeria as well as consulting experience on the GEM Project of the World Bank and facilitating training for different private and public institutions.

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