Can you mention at least 10 questions venture capitalists ask before investing in your business? As an entrepreneur or business owner seeking funds to start up or grow your company, you must be prepared for your intending investors.
If you do not know, that is what this article is for. By the time we are through, you will be ready to present your business before a venture capitalist. What do the Venture Capitalists want to know about your business before investing? Let’s start by defining who they are.
Who Is A Venture Capitalist?
In one of the top articles, while talking about 11 ways to get funding and grow your business in Nigeria we described who a Venture Capitalist is. To requote, we said:
A venture capitalist (VC) is a private equity investor who makes his funds available for investing in companies or startups with high growth potential in exchange for an equity stake.
Venture capitalists are normally formed by limited partnerships where the partners invest in the VC fund. They then set up a committee that makes investment decisions on their behalf.
Venture capitalists do not invest in early-stage startups, they invest in startups that are about to commercialise their ideas. They use their funds to buy a controlling stake in the company, help nurture it and then look for a way to cash out substantially.
Before venture capitalist invests in a venture, they look at the management team, the market size, and a product with a strong competitive advantage. Most venture capitalists are experienced entrepreneurs, so they will look at industries they are familiar with.
Some venture capitalist in Nigeria includes Ventures platforms, Greentree investments, Microtraction, IFC Capital, e.t.c.
10 Questions Venture Capitalists Ask Before Investing
So you have a great idea, but that will not guarantee the success of your business. Before a venture capitalist agrees to invest, he/she must be certain you are the real deal. Here are 10 questions venture capitalists will ask before investing in your business.
1. Can you lead?
Hey, before you hurry off to saying yes, reflect on what makes a true leader. Are you a great communicator and do you inspire? Are you able to remain calm and competent under pressure? Do your leadership abilities reflect on your staff?
These indicators frequently indicate to venture capitalists you have the potential to succeed. Prove to your targeted investor how much of a leader you are.
2. Do you have an effective management team?
Sam Bernards, a renowned Utah venture capitalist and partner at Peak Ventures, once said “It’s the team that means everything”. He stated that how they feel about the team accounts for 80% of their decision.
Investors will want to know that the team possesses the necessary skills, drive, experience, and temperament to help the company grow.
3. What is the size of the market opportunity?
Often these investors are looking for businesses that can scale and become meaningful. So make sure you address the issue of why your business has the potential to become exceptionally large right from the start.
How much of the market do you intend to capture over time? It should be written in your plan and presented well.
4. What is the nature of your conversion process?
Simply put, how do I make money? Yes, you have a great idea and the people love it, but how is it going to generate leads? They also want to see that there aren’t too many roadblocks in the purchasing process and that the conversion process is simple.
5. What has the company accomplished so far?
Are the services or products being accepted? What are the feedbacks? Are there testimonials? A company that has achieved early momentum is more likely to obtain venture financing on favourable terms.
6. What exactly will you do with the capital?
Do you understand your financials and key matrix? There is a big difference between ‘I will use N100 to transform the business,’ and ‘N50 will be used for 5 human resources, N20 for 1 machine, and N30 for 3 raw materials’.
The difference between the two scenarios is the details. No venture capitalist wants to invest in a business if he/she doesn’t know exactly what their money will be used for. In Forbes publication, they quoted Mark Patricof, founder of Patricof & Co.
He said “The most impressive entrepreneurs communicate the value of their businesses through numbers. A conversation centred on a company’s revenue growth, sales funnel, and customer churn causes an immediate connection with investors because when entrepreneurs position themselves as metrics-driven, it’s as though they’ve entered an investor’s mind.”
The operational cost and financial breakdown of running the business have to be broken down. This can be done by a financial analyst if you are not up to the task.
7. Do you have a reasonable cash expenditure rate?
How often do you run out of cash and what does your expenditure entail? Is it spent reasonably or spent on frivolities? Simply put, a venture capitalist wants to know if he/she is giving money to a waster.
8. What Are the Potential Business Risks?
Just like life, a business cannot always be rosy and we do not live happily ever after. Your investors know there will be risks and want to hear about it. They also want to know how you will navigate through and mitigate those risks.
9. Do you own any intellectual property?
What Is the Intellectual Property of the Company? This term refers to intangible property created as a result of creativity, such as patents, copyrights, and so on. Investors will want to know as it could be a key to the business’s success.
They’ll also want to know that the company’s intellectual property does not infringe on the rights of third parties.
10. Are you breaking any law?
Is your legal structure in order and in accordance with applicable laws? No investor wants a messy company that has issues with the law. Is your business registered under the right body and are you in compliance with tax laws?
You can also purchase our Ultimate Legal Guide to Doing Business in Nigeria. It answers 147 legal questions about businesses in Nigeria and comes with 7 free templates.
10 Early-Stage Investors and Venture Capitalists in Nigeria
1. Venture Platform
Venture platform is one of the early-stage investor platforms that is trusted by many. It is spearheaded by Kola Aina and supported by other tech gurus. Venture Platform partners with bold founders during their early days of starting a company.
If you are going after a big or growing market with a killer product, Venture Platform is the best place to be. Interestingly, several highly acclaimed companies have emerged from Venture Platform. Some of the companies funded by Venture Platform include Printivo, Paystack, Thrive Agric, Accounteer, Reliance HMO, and PiggyVest.
2. SPARK Capital
This is another company that builds companies with a major focus on Lagos, Nigeria. Spark supports startups that have a well-defined and scalable revenue model.
3. GreenHouse Capital
Venture Garden Group introduced GreenHouse Capital in January 2016. GreenHouse is one of the largest fintech investment holding companies in Nigeria. Their goal is to provide African technology companies with the resources and network they need to drive growth and scale their companies locally and internationally.
Over the years, the company has supported companies like Max.ng, Flutterwave, Mines.IO, Appzone Africa, and Adspread alike.
4. Growth Capital by CCHub
Here is also one of the early-stage investor platforms supporting high potential businesses that are using technology to build the next-generation infrastructure.
In addition, Growth Capital has participating investors that bring their years of experience to help facilitate the growth of the investees. Some of the investors include CC Hub, Bank of Industry, and Venture Garden Group.
The platform has invested in 6 companies building digital infrastructure across healthcare, commerce, education, and other sectors. The companies are Taeillo, Edves, Riby, LifeBank, DeliveryScience, and DrugStoc.
5. LeadPath Nigeria
At LeadPath, the major focus is on technology entrepreneurs dealing in software applications, mobile applications, electronic payments, and big data.
LeadPath average investment ranges from $25,000 and above depending on the stage and needs of the business. The companies in their portfolio include Regista, PushCV, and Intellectric.
6. GreenTree Investment Company
GreenTree Investment Company makes our list of early-stage investors. This company provides access to funding for an innovative technology business.
More than that, they provide technical support, legal advice, governance structure, and simple financial planning to the businesses they invest in. Some of the companies they have invested in are Big Cabal Media, Precurio, and Paystack.
7. SLA Accelerator
Needless to say, She Leads Africa Accelerator is a trusted early-stage investor platform that supports Nigeria’s brightest female entrepreneurs. It’s a 3-month program that is open to businesses based anywhere in Nigeria.
To be a partaker, all you need to do is to apply from their site whenever the application is opened. However, there are criteria involved to qualify.
8. EchoVC Partners
EchoVC Partners is an early-stage investor and venture capitalist company. They provide funding for leading technology companies and teams with sustainable business models in Sub-Saharan Africa, Europe, and North America.
Companies in their portfolio include but are not limited to SystemOne, Gro Intelligence, Hotels.ng, Printivo, Lifebank, myPadi.ng and Easyshop Easycook.
9. Lagos Angel Network (LAN)
LAN is an early-stage investor that gives Lagos-based entrepreneurs access to funding, mentoring, and building a sustainable business ecosystem. In addition, LAN is a not-for-profit entity that organizes seed funders to invest in start-up businesses.
Importantly, they partner with renowned establishments like British Council, Co-creation Hub, She Leads Africa, Mest, Global Business Angels Network, Demo Africa, and many more.
Microtraction is another trusted early-stage investor in Africa. They invest in Africa’s most remarkable teams with technical founders at the earliest stage of their venture.
In addition, they invest $65,000 in two stages. First, they invest $15,000 for a 7.5% equity stake, then an additional convertible note at a $1 million valuation cap in companies that demonstrate growth potential after the initial investment.
Before pitching your company, you should ensure that it is legally sound and appealing enough to bring in investors. Good luck with your business!