Few third-party South African investors invest in pure start-ups. The expectation is that the founding team will have funded the initial stages of setting up the company and getting some form of product or market fit.
Investors, especially in the current markets, are looking for businesses that have identified a large problem in a growing market that their company is solving in an efficient, innovative, and defendable way. They’re looking for committed and complimentary teams. And last, but not least, they’re examining financial projections to see if they are well substantiated with credible assumptions based on traction to date in conjunction with a clearly defined execution strategy.
Investors are also looking for red flags – those signs that early-stage businesses might not be a good investment, at least right now. We asked one of Edge Growth’s SME experts what puts an investor on alert.
- Lack of market adoption over a certain period of time.If your business is offering products that just are not gaining traction, you need to stop and evaluate your offering, your marketing and your position in the market. What are the things that are stopping your product uptake? It might be as simple as a complicated process, an obstructive staff member, or poor branding. Take this flag seriously, because if you don’t remove the obstacles, your business might just crash.
- Lack of focus on core offering.The main thing needs to remain the main thing. It sounds simple, but if you are not focused on your core offering, your distraction means you are less efficient, less marketable and less scalable. It’s a red flag you cannot ignore.
- Any questions around the integrity of a team.That old saying “teamwork makes the dream work” remains as apt today as when it was first rolled out. In a country which is facing the ongoing effects of poor management, integrity is not just the Holy Grail, it’s everything. If your team does what they say, to a high standard and with integrity, you’re situated for success. No one wants to fund a sinking ship.
- Overly dogmatic founders who lack the ability to adapt in a changing environment.This red flag sounds obvious, but there are many early-stage businesses that have had to close in the last two years because they lacked the ability to change. No one could have predicted Covid-19: the companies which adapted survived, and those that embraced change even thrived. Founders bring amazing ideas, innovation and creativity into business, but the inability to adapt your dream is a definite red flag to investors.
Don’t red flag your company. By regularly reviewing your market adoption, being open to adaptation, focusing on your core offering and ensuring your team embody the values of your business, you’ll position yourself for growth and investment.