How We Raised Venture Capital – What No One Tells you About What Happens Next
This article was originally published in 2016.
Raising venture capital is a well-documented challenge, however, many startup founders have been surprised to find that a bigger bank balance does not necessarily put an end to all their problems.
Many founders soon find out that with VC also comes the additional pressure to not only to use the money productively but that there is external pressure from investors too.
Mike Quinn, CEO of Zoona, a South Africa-based money transfer company operating primarily in Zambia, knows this first hand.
Three years after the company was launched they closed what was the first ever international venture capital round for a Zambian startup.
Zoona, which operates through a network of agents, has over 1,300 outlets across Zambia and a further 400 in Malawi.
The company caters for Zambia’s unbanked and low-income consumers as well as small businesses – typically ‘mom and pop shops’ who have poor access to capital and the banking system.
According to Zoona, they service 1 million customers every 60 days.
By the time the “money is in the bank” – the priorities, financial and non-financial, will already have been clearly established. These would have been a part of the proposal submitted to the investors
Quinn shares with SME South Africa how securing funding changes everything and why hiring right turned out to be one of their biggest challenges.
A first for Zambia
Zoona was the first technology startup from Zambia to receive international venture capital funding – and it definitely was not easy. Having a compelling case for building financial inclusion eventually sealed the deal.
Africa continues to represent huge untapped opportunities when it comes to bringing financial services to communities. Over 70% of adults in Zambia, our first market, have no access to financial services. The picture is similar across the continent. Moving cash across distances around is often a big challenge – many people resort to physically transporting the money, or asking someone (like a truck driver) to do it for them. Companies that find a way to enable easy, quick and safe alternatives to physically transporting money will be providing an invaluable service to communities.
Funding was like ‘adding a supercharger to a car’
The biggest impact of raising investment is the change it has on the planning horizons of the business. At Zoona, we went from looking at which payments we need to succeed this month, to what we need to do to succeed in two years. In a worse-case scenario, raising investment can be like breathing life into a corpse – but for us it was more like adding a supercharger to a car – it resulted in a big inflection point in our growth.
It meant we now had the resources to concentrate on ideas and innovations that we could not pursue before.
‘The money is in the bank’ – Now what?
By the time the “money is in the bank” – the priorities, financial and non-financial, will already have been clearly established. These would have been a part of the proposal submitted to the investors.
That being said, for a startup that is in the process of scaling – as Zoona was and is – people decisions are among the most expensive and most valuable. A significant portion of any investment raised (as much as 60% in some cases) will normally be re-invested in hiring people to help fuel the expansion and growth of the business.
Finding the right people, therefore, is key. This means ensuring a ‘values fit’ in addition to a ‘skills fit’. It also means spending the time to onboard them properly, as well as preparing the organisation for the change that an influx of new people often entails.
No matter the size of the investment, you’ll notice you can spend it very quickly if you’re not careful
You have to shed the early-stage startup mindset
Running an organisation that has raised investment requires a completely different set of behaviours from the leadership (and founders in particular).behaviours from the leadership (and founders in particular).
It means moving into an environment where you need to deal with a Board of Directors which has specific reporting requirements and power to shape the direction of the company.
It also means that you’re more likely to bring in experts and specialists into the business, whose expert advice may sometimes be at odds with your own initial ideas.
Your hiring strategy will suddenly be everything
As is the case in many startups, we initially hired based on personal networks and relationships. There is nothing wrong with this. A-Players tend to bring in A-Players, after all, but it is an approach that does not scale easily.
As you grow, you need to become more discerning in your hiring approach. We have recently started on this journey and begun implementing a 12 step recruiting and onboarding process that is already bearing fruit.
There will be surprises
There were a few. Firstly – no matter the size of the investment, you’ll notice you can spend it very quickly if you’re not careful. The important consideration is that you need to make the money productive – use it to generate revenue, as quickly as possible. Investors are looking for, and expect, a level change in delivery, the moment the investment is approved.
Secondly, there are significant non-financial benefits to getting investment – particularly if you find the right partners. Zoona raised investment from the Omidiyar Network and Accion Financial Inclusion Fund. Both provided us with very experienced board members and have opened the doors for executive coaching, networking and introductions to other potential investors. The value of finding the right investors cannot be overstated.
“Being funding-ready means putting in the time to build the processes, controls, policy and governance measures that will be necessary towards securing funding”
If we could do it all again
We would have perhaps paused after receiving the money – to fully consider the next steps. The fact of the matter is that the game changes completely after you’ve received the money. You move from thinking in weeks to thinking in years – which can be a jarring change, so taking time to let it sink in is good advice.
We would also be more proactive in managing our hiring and people processes. We’ve done quite well in this regard, but it was almost accidental. Knowing what we know now, we probably would have focused even more on providing great onboarding for new staff to ensure values alignment. Actually, this even extends to board members who come along with any investment received. Spending the time to onboard them is very important.
How other startups can prepare themselves to be ‘funding ready’
Getting-funding ready involved four elements. First – to use the technical jargon – was ensuring ‘product-market fit’. This meant building the business to the point where its offering matches market demand so well that it is growing steadily, week-on-week, month-on-month. Investors will rarely invest in a business that cannot demonstrate this consistent growth and product-market fit.
Secondly, being funding-ready means having the right team in place. Investors want to see an executive team that is well-structured, well-aligned, and with the right skills, and more importantly, vision – in place. For us, as is the case in many startups – this involved really understanding the core strengths of each of the executives and ensuring they were deployed in the way that generated most impact for the business and flow for them as individuals. When investors invest in a business they are putting their trust in the leadership team, and the CEO in particular – so you need to demonstrate that the leadership team has the right vision and is geared to deliver on it.
In order to be funding ready, you not only need to have a well-articulated vision – but also a solid business plan, as well as forecasts and projections. These will be thoroughly interrogated during any investors’ due diligence process.
Lastly, being funding-ready means putting in the time to build the processes, controls, policy and governance measures that will be necessary towards securing funding. For Zoona this was an important step – and this is the case for most startups. Investors will not invest in a company that does not have its “house in order”.