16 business ideas on raising capital in South Africa, pitching to investors and going international.
Michael Renzon is a South African entrepreneur and the co-founder behind inQuba. Since his mid-twenties, Michael has been involved in various entrepreneurial pursuits. He has sold his past companies to the likes of Dimension Data and Altron before founding inQuba with his business partner Trent Rossini. A Civitas team member sat down with Michael to discuss raising capital in South Africa, selling into an international market and inQuba’s incredible growth.
Summary of the best ideas from the discussion:
- Don’t be afraid to create an offer that is contrary to what the rest of the industry is offering.
- By differentiating yourself you can gain market share at a rapid rate.
- Solve a problem in an innovative way, use design thinking to plan how to synchronize execution from the outside in, execute with detail.
- Investors want to see a team that has a clear vision of what they want to do.
- Investors want to see pragmatism in your planning and growth rate.
- Raising locally, South African investors want to see you talk a sensible game that is believable. No unsupported hockey stick projections!
- US investors look at the metrics, 30-40%+ YOY growth, excellent retention metrics, a US customer base.
- You have to be number one, two or three in the market to be successful.
Challenges
- I think our biggest challenge has been marketing and getting the product to market outside of South Africa. This is very much a structural kind of problem, which is probably our biggest challenge. We’ve used a stepping-stone investment approach to internationalize the business.
Growth
- Get funders who really believe in the business so it’s well capitalised. Each time you do another funding round, you can grow and scale your business. With successful execution you establish the foothold for a larger subsequent round and attract international interest.
Selling and standing out
- Product differentiation is key. If you can’t solve a problem in a more innovative way, you have to reconsider how you are going to compete.
- I think when you have differentiated product sets and delivery capability behind you, it makes selling a whole lot easier.
Raising capital in South Africa
- If you have a South African business and you're raising here, you have to talk a sensible game that will be plausible and believable to the local investment community.
- Picture what you can achieve realistically within a two or three year period. If that means you value your business lower then do it. Then you execute, and execute well, and then you raise again.
Pitching to investors
- Your story has to stack up. Some entrepreneurs try to puff up their story to a level that is unrealistic, and it's not what the VC's want to see. They want to see a team that is clear, and has a clear vision of what they want to do and proof of exceptional execution.
- The investors want to see pragmatism in the planning so that there is plausibility when you look at the plan from 360 degrees.
- Create a pool of interest quite early. Create demand for the business. Not to play the VC's off against one another, but to give you better context as to who's out there and who would be right as a partner for that stage of growth. Different investors bring very different value to the business. Relationships are paramount. These guys are going to be your new partner in the business, you need to respect that and their seat at the Board table. You want to work with people that you really get along with and who bring clear value over-and-above the capital they bring to the business.
- Don’t only approach one investor. Try and create a strong interest from a minimum of two, but ideally three as a starting point.
Going international
- The first thing that we learnt is that the recipe for success in South Africa is certainly not going to be the recipe for success offshore.
- The first thing you have to do offshore is you have to build your brand. People will not buy from a brand that has not been built in that market. South African companies tend to not spend nearly enough time packaging their product and delivery. Offshore markets are far more sophisticated in this regard.
- The U.S. market is a place where you have to develop a very niche strategy, and you have to really understand what you're doing. If you want to enter that market, it has got to be super specialised, and you need a lot of resources to be able to get the attention of that niche that you're chasing.
- We like the idea of testing the plan. So let's say you're going after the short term insurance industry. One of the exec's should move over for a period of time and see if they can get a single insurance customer. Spend a year there and see if they can land that customer. The lessons learned during that year will be invaluable.
- Proxy markets are very useful. It [Australia] is a small enough market to still get your hands around, but it's three times bigger than the South African market and is far more sophisticated. So a lot of the lessons that we've learned for the U.S. have come out of Australia as a proxy market.
- What we've learnt is, you have to be a number one, two or worse number three in a market to be successful, if you’re number seven or eight in that market, you're going to go nowhere. If you can't be number one, two or three in your niche that you've chosen, you shouldn't be entering it in the first place.
