For a lot of founders in rising markets, enterprise capital can really feel like a black field. Investor expectations are sometimes opaque, and founders not often get the prospect to query the gatekeepers of capital. 

Most of the time, founders are within the scorching seat answering questions on their enterprise, whereas buyers resolve whether or not their firm is value backing.

On this week’s Ask an Investor, I switched the roles and gave six founders the chance to ask funding professionals questions on enterprise capital and investing. The founders requested questions on their funding thesis, assist for founders, exit technique, and absolutely anything associated to investing. 

On this version, founders from fintechs like Sycamore and Allawee, social media startup Storipod, regtech startup Regfyl, e-commerce startup Selar, and lending startup Reown requested buyers from Endeavor, Consonance, Catalytic, Kuramo, Launch Africa, BRB, and Alitheia Capital questions. 

The questions spanned startups they missed out on that went on to do effectively, what the way forward for investing on the continent seems like, why enterprise capitalists maintain backing the identical sectors in Africa, and several other others.

It is very important observe that these solutions mirror the private opinions of the analysts and never their corporations. 

The interviews have been edited for size and readability.

Babatunde Akin-Moses (Sycamore’s founder): Do you foresee a time when a brand new funding (maybe a mix of enterprise capital and personal fairness) would emerge to handle urgent African issues that aren’t technology-based? 

Chukwuemeka Agba (personal fairness analyst at Kuramo Capital): I believe that any enterprise that basically solves urgent African issues (for instance, energy) ought to be scalable. Scalability is a significant factor of sustainability. 

With respect to funding sentiment across the non-typical tech-based options, I consider we’re more and more seeing blended financing actions on the continent with participation from improvement finance establishments, impression buyers and returns-focused enterprise capital and personal fairness gamers. I consider we’ll proceed to see progress in a lot of these investments throughout the continent.

I don’t anticipate this to be a standard supply of funding for startups, however I undoubtedly hope we see extra of those collaborations between impression and returns sooner or later. 

James Nelson (Storipod’s founder): When many buyers describe themselves as ‘sector agnostic,’ the default nonetheless appears to be fintech, mobility, and logistics. However what platforms are actually exploring or backing the artistic financial system in Nigeria? 

Jeffrey Akemu (platforms and operations at Launch Africa): Sure, even amongst sector-agnostic funds, true engagement with the artistic trade stays restricted. The artistic financial system in Nigeria is vibrant, with music, movie, design, animation, and digital content material producing not solely cultural capital however important business worth. Nonetheless, it struggles to draw enterprise capital on the identical scale as fintech or mobility. 

That is partly as a consequence of buyers’ lack of familiarity with the enterprise fashions that drive artistic ventures, which frequently depend on royalties, IP monetisation, long-tail distribution, and creative affect, that are parts that don’t all the time match conventional tech VC metrics.

Ikenna Enenwali (Allawee’s founder): Have you ever ever handed on a startup you want you hadn’t,  and what did they get proper ultimately?

Fisayo Durojaiye (funding director at WEAV Capital): So, as a VC, what does success imply from a startup investing perspective? All of it boils right down to money returns and important impression.

So, if I’m going to remorse passing on a deal, the deal should have achieved a good exit for buyers and adjusted the lives of many. Not many offers match these standards. So, based mostly on this, I’d say I’ve not had any regrets thus far.

What I usually see is that some startups do effectively for a while, increase tens of millions of {dollars} in extra funding, solely to wrestle as a consequence of defective enterprise fashions, usually low margins and really excessive working prices.

So, whereas they have been the darling of buyers, you questioned your self repeatedly. What did I miss? What are these buyers seeing? What may I’ve performed higher? Ought to I’ve seemed away at these yellow or crimson flags, and so on. Nonetheless, over time, the cracks start to indicate. My level is, besides you’ve made your buyers 10x their cash and adjusted the lives of tens of millions, I’ve no regrets.

Temidayo Oniosun (serial angel investor): I want I had a narrative like that. However no, I don’t assume there’s any startup I’ve handed on and later regretted.

There’s by no means been a case like that.

What I’ve seen occur loads is: I move on a startup, after which a couple of months down the road, issues change into extra apparent—why I really handed on them. The problems I raised as crimson flags normally find yourself coming to gentle.

So for me, it’s extra like being vindicated. I don’t assume I’ve ever handed on an organization after which later thought, “Oh, I made a mistake.” That hasn’t occurred.

There was this startup. They mentioned that they had a cope with Paystack to launch Paystack’s POS enterprise and that Paystack wished to make use of them as a companion to roll it out.

The founder sat in my home pitching me arduous, placing strain on me to take a position. However as I investigated, I realised he had exaggerated plenty of the claims, particularly the supposed settlement with Paystack. He made it sound means greater than it was, in all probability as a tactic to boost cash.

I flagged these and advised him straight up, “I’m passing in your startup, and this is the reason.”

The following month, I noticed he had taken a job at one other firm. So I’ve had fairly a couple of of these experiences, the place startups are both on the flawed monitor or pushing a story that doesn’t maintain up, and I stroll away. After which months—or a 12 months or two—later, it performs out identical to I anticipated.

Audu Ayodeji (Reown’s founder): What triggers a follow-up dialog or a move after the primary name with a founder? 

Favour Eniola Ubaka (portfolio supervisor at Catalytic Capital): A horrible pitch deck that doesn’t include crucial particulars just like the numbers, staff, or fundraise quantity will result in a move on. There could be a move on if the founder is unable to reply buyers’ questions with confidence.

However, there could be a follow-up dialog if the founder’s pitch is in sync with the funding thesis and all vital particulars are addressed through the name or on the pitch deck. The founder’s confidence also can result in a follow-up. There are additionally situations the place the investor’s intuition is drawn to the founder. In circumstances the place investments can’t be made, the investor may present enterprise advisory, mentorship, or introductions to related stakeholders that may assist.

Douglas Kendyson (Selar’s founder): On this present local weather, what would persuade you to spend money on a startup with no traction?

Sumayyah Adefolu (funding and operations intern at Consonance Capital): In at present’s local weather, three key components would persuade me to spend money on a startup with no traction: the founding staff, the founder’s monitor report, and my conviction within the answer they’re providing.

The Founding Workforce: I’d be trying carefully at whether or not the staff has the resilience, ardour, and competence to construct one thing significant. Have they got related expertise? Are they resourceful and credible? Popularity foreign money issues. I’m instantly cautious if I sense founder fatigue from repeated makes an attempt or if it seems like they’re chasing VC funding for its personal sake. As Naval Ravikant as soon as mentioned, “Even after I make investments, it’s as a result of I just like the individuals concerned… I be taught from them… I believe the product is actually cool.” That sentiment resonates with me deeply.

The Founder’s Observe File: On this case, a robust historical past of execution issues. Ideally, I can think about a repeat founder—somebody who has launched and constructed at the very least one or two ventures which have exited. Do they love the work sufficient for it to really feel like play? Do they deal with VC capital with the respect it deserves—as stewards of different individuals’s wealth? I’m additionally eager on whether or not they prioritise integrity and transparency in reporting and have the analytical expertise to know and work with information. That type of founder offers me confidence, even with out traction.

Conviction within the Answer: Is the product simply hype, or are they tackling an actual, ignored drawback that individuals could be keen to pay for as soon as it’s uncovered? Can I clearly see scalability, a community impact, and a novel worth proposition? If it’s merely a copycat mannequin attempting to retrofit one other market’s success, I’m much less more likely to again it. But when I see the potential for a 10x return and real innovation, I’ll lean in.

Opeyemi Lawal (affiliate at Endeavor): Earlier than anything, I’ve to actually consider within the enterprise mannequin. That’s all the time the start line. I look carefully on the market too—particularly, is there demand for the answer this enterprise is proposing? If a startup has no traction but, it’s usually as a result of they’re simply beginning out—possibly on the pre-seed or seed stage. 

In these circumstances, I give attention to two key issues: Is there an actual marketplace for the answer, and do I consider within the founder’s means to execute?

If each try—if the market is evident and the founder is somebody who deeply believes within the imaginative and prescient and may scale—then I’d think about investing, even with out traction. That mentioned, it’s undoubtedly tougher to take that leap in at present’s local weather.

Now, if I consider the market is giant, that helps decide the quantity I’d be keen to take a position. However typically, even when the market information isn’t convincing, I’ll nonetheless make investments as a result of I actually just like the founder or the concept—that’s extra of an emotional resolution.

Nonetheless, if I’m relying purely on information and I don’t see market validation or founder grit, it’s going to be very tough for me to go in. The one cause I’d overlook the market is that if I consider the founder has the drive and resilience to scale the enterprise, overcome challenges, and outwork the competitors.

But when I don’t see that degree of grit, and I don’t consider out there both, then it’s a no.

Babatunde Ibidapo-Obe (Regfyl’s founder):  In your expertise, what are a number of the greater errors that founders make after elevating their first institutional spherical?

Aisha Hassan (portfolio supervisor at BRB Capital): The most typical and essential mistake founders make after elevating their first fund is diversion of funds from the unique use of the fund through the increase spherical. This consists of allocating capital to non-core actions, pursuing unplanned initiatives with out a clear return on funding, overspending on different initiatives with none important impression, slightly than specializing in product improvement, buyer acquisition and retention, and scaling operations. Additionally, failure to take care of monetary self-discipline, poor money movement administration, and insufficient efficiency monitoring can rapidly compound these issues.

Aishat Adigun (worth creation analyst at Alitheia Capital): One recurring subject I’ve noticed is scaling quicker than demand. Founders usually assume that after funding is secured, it’s time to rent extra workers and broaden the availability aspect of their services or products with out adequately monitoring or fulfilling precise demand. A great instance is WeWork. They started renting and leasing workspaces at scale with out securing sufficient demand, resulting in a low occupancy price that might not justify the availability of areas. Consequently, capital was tied down, and the runway rapidly disappeared.

One other main mistake is the presence of a unfastened inner working system following enlargement. As startups develop, we frequently see a breakdown in firm tradition, a scarcity of readability across the firm’s mission, and fading alignment on the long-term imaginative and prescient. Aims and Key Outcomes (OKRs) change into disconnected from day-to-day execution, and technique stays on paper with out translating into tangible actions.

A method buyers can keep forward of that is by implementing a 100-day and 1,000-day plan framework, monitoring progress over time. This helps make clear what’s being performed, at what value, and when, guaranteeing accountability and alignment throughout the corporate because it scales.

Mark your calendars!  Moonshot by TechCabal is again in Lagos on October 15–16! Be part of Africa’s high founders, creatives & tech leaders for two days of keynotes, mixers & future-forward concepts. Early fowl tickets now 20% off—don’t snooze! moonshot.techcabal.com.