Raising enough money is a big challenge for women entrepreneurs. Therefore, having knowledge about all the possible sources of funding could put you a step ahead of all the other entrepreneurs looking for money. One source is Venture Capital (VC).
But do you know how Venture Capitalists decide whether to fund your business or not?
First, what is Venture Capital?
Venture Capital is a pool of money looking for businesses to invest in. The money typically comes from pension funds and insurance companies looking for the high risk high reward type of investments. Plus, with Kenya being a country that is very receptive to foreign investments, more of Venture Capital in Kenya is available from wealthy individuals bored of assured but low returns in developed economies.
How do they find entrepreneurs to invest in?
Many times, VCs will not be too different from the Kenyans who copy business ideas. They will invest in industries where other VCs have invested in. They also find entrepreneurs through referrals. So they may find you of you have high visibility or have done your networking homework well. But even if they find you and your business they may not choose to invest in you.
What VCs want are businesses with high potential in terms of markets and revenue. Your small business may be good for you but if it’s not going to experience rapid growth in 3 to 5 years, the VC will not show interest in it. If this investor wanted slow but sure growth, they would simply get into the Nairobi Securities Exchange. So your first hurdle is to be in a high growth industry or go the long way and convince them that you are.
The VC must be convinced by the details of your business plan. Do you have a good team? Is your product up to scratch? And, let’s cut to the chase, what are your financial projections?
Venture Capital in Kenya has invested in a few businesses, why?
Please appreciate that the in our small formal economy, the pool of monies to dish out is going to be equally small. Secondly, just because you have started a business in a high growth sector doesn’t exclude you from the reality that most new businesses in Kenya fail. VC is an unsecured loan so they have to be really picky about whom they choose.
What if you do get VC funding?
Venture Capital will trade their money for a stake in your business. If you are not comfortable with consulting when it comes to running your business then VC is not for you. By the way, it is mostly you doing the consulting.
They may not stop buying stake at the first time of funding. So, be aware that you will lose a lot of control on the direction of your business. But once they get their returns, a few years down the road, they will cash in their stake and go look for another entrepreneur to invest in.
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