The How-To: Map Your Startup's Financial Journey
The entrepreneurial ecosystem in the UAE has grown substantially in the last five years, with startups now a crucial element of the government's Vision 2021 development plan. This makes the time now better than ever for local entrepreneurs, with the nation's leadership facilitating innovation in a big way. The National Innovation Strategy (NIS), announced in 2014, aims at making the UAE one of the most innovative nations in the world within seven years, across seven sectors including renewable energy, transportation, technology, education, health, water, and space. The NIS will focus on building an innovation enabling environment, which will address key aspects concerning entrepreneurs including the right regulatory framework, fostering a culture of innovation and entrepreneurship through providing incubators, enhancing the technology infrastructure, and providing investments and incentives.
The private sector is now more focused on backing the new wave of ventures with corporations eager to fund young entrepreneurs armed with niche yet pragmatic ideas. The rise of corporate venture capital is evidence, and we see large corporations creating separate arms to invest in new ventures, such as STC Ventures, MBC Ventures, Mobily Ventures, and Crescent Enterprises' CE-Ventures, and Vodafone Ventures, to name a few. Funding for a dream enterprise, however, hinges on how effectively you pitch your idea to potential investors. With strategic investment being the core focus of my job, I spend a great deal of time vetting business proposals. By far, the most attractive aspect of a new business idea is its lucidity– a simple, streamlined and well thought-out road map goes a long way in grabbing the attention of an investor. Here is an adaptable four-point guide to give you this leverage– at one shot.
1. THE IDEA
A good business plan must clearly identify whether it is trying to solve a problem, fill a gap in services or create a whole new demand area- and offer solutions that can be monetized and scaled up. You should clearly explain your business model:
- How do you propose to make money?
- Can it be easily replicated in other markets?
- Is it designed for local markets only?
The plan should also indicate differentiation or uniqueness, and demonstrate the competitive advantages that you believe will make your business a success, such as the location, efficiency of operation, or the potential to appeal to cross-border populations. Remember, investors are not interested in companies that cannot distinguish themselves from their competition.
To do this, clearly define the market space you are trying to capture whether it's to resolve carpooling problems, provide a platform for medical services, or fill gaps in the luxury and entertainment sector. Indicate who your customers are, how many you expect to attract in an area, and the mode of reaching out to them.
While laying out your objectives, make sure they are kept concrete and measurable. Do not use generalities like "rapid growth potential," and try and include authentic surveys.
- What is the Big Idea and why does it work? Quantify benefits in customer-centric terms.
- How is it different from existing offerings?
- How scalable is the idea or the business model?
2. THE EXECUTION
Investors want to make sure a company's founder really understands the industry he or she plans to enter in to, and can transform an unlikely idea into a successful business. Define your supply chain and identify its components. If your business involves physical products and logistics, make sure you exhibit an intimate knowledge of who your suppliers, vendors or logistics support will be and their ability to scale up swiftly.
Entrepreneurs should also discuss the areas that are problematic or risky and should not shy away from enlisting the hurdles, as an experienced investor will anyway spot the problems right away. Displaying an ability to foresee obstacles will assure the investors that you know your product and market, and that you are ready to work on the practical difficulties. Investors should also be able to see a clear roadmap with definite milestones and a sensible timeline to achieve targets that have real meaning to the business, be it additional customers or number of cities entered or new products introduced.
- Show your knowledge of the business
- Create an execution timeline
- Highlight hurdles clearly and how you plan to overcome them
3. THE TEAM
According to legendary investor Ron Conway (of Google, Twitter, Square and PayPal fame), the most important factor in a new-age startup is the team. More often than not, investors are willing to bet on the "big idea" only if they are convinced about the quality of the intellectual asset they are backing.
Make sure to bring quality people on board who are as passionate about the new venture as you are, and willing to take the risk along with you. Investors also want to see if you are making optimum use of manpower. Your business plan should include your company's proposed organizational structure, profiles of your technical and management team, their qualifications and how they are suited to your business. Include their past ventures, experience and previous entrepreneurial projects if any. Try to show that you are leaving nothing to chance, that you have thought out exactly who is doing what, and that there will be no duplication of work. To a potential investor, this is very important. If entrepreneurs do not have a team in place, seek professional help.
- Identify your team, their qualification and experience
- Clarify the value they bring to the business
- State how you will incentivize the core team
4. THE FUND PITCH
Now we come to the basic purpose of this exercise, which is pitching for funds. Try to give a clear idea of the kind of returns you expect from your venture, how it can be achieved, and when you intend to break-even. State clearly how much investments you have put in to the venture to date, whether initial cash or sweat equity, and whether you plan to further inject funds or not. Investors want to see how much skin in the game an entrepreneur has.
Entrepreneurs can learn about their investors' background and the successful businesses they have backed previously so as to tailor their pitch appropriately. Moreover, it is just as important to gauge whether the investor has experience backing similar businesses or startups in general.
Timing is critical when you speak to the investment community. Do not go to investors with half-developed ideas, and be very careful and honest while projecting the current status of your project and product. Specify your current funding requirement, and map out a five-year projection detailing how you intend to use the funds.
Be clear as to whether the funding request is for capital expenditures or working capital, and whether it should be in equity or debt form. Clarify future plans if they include a buyout, acquisition, or debt repayment plan. Also include the time period that each request will cover and the terms that you would like to have applied.
- Know your investors, numbers, and the plan in its entirety
- State your funding needs and do not hold back
- If there is a long-term vision, make sure you present them right at the start