By Daniel Mpala
It all comes down to a shortage of trust — says Chanzo Capital managing partner and Angel Fair Africa founder Eric Osiakwan, on why so few younger entrepreneurs are able to secure funding.
Osiakwan (pictured above,second from the left), speaking in a panel during last month’s Very Young Entrepreneur Education & Acceleration Summit in Johannesburg, described building a company as akin to a science, while raising money is an art.
“So, you have to do two different things at the same time, and it’s an art of relationship building,” he added.
For Osiakwan, the best time to raise money is when you don’t need it. He advised young entrepreneurs looking to raise funding for companies that they haven’t started yet that now is the time to start building that relationship, and building trust.
“At an early-stage, we say that people invest in people. An investor is investing in you, not the business. And there is a very interesting contract which is that I’m investing in you, believing that you will make the execution, the business work,” he says.
Rekindle Learning founder and chair Rapelang Rabana, who was also part of the panel discussion, said she was a 22-year old UCT graduate when she landed her first funding.
She believes she was able to clinch the funding because she had spent nine months developing the prototype of the software that she wanted to build.
At the time, she said, she, along with her team, had managed to convince their parents to feed and clothe them, adding that they had to “live like students again” to try make it work.
“I think that spoke something to investors that we’d come this far with very limited resources, and that we had a demo that worked at least 50% of the time and we could actually show something, that we could produce something that was comparable to what they were seeing around the world,” said Rabana.
Taking action and starting small, Rabana pointed out, was a big part of cultivating that trust.
Cloudline founder Spencer Horne, who during the same discussion admitted that he’s having difficulty raising funding, added that he sometimes “struggles to wonder” what he needs to do to bridge that trust gap.
On leaving African Leadership Academy and university shortly after, Horne took a corporate job in the belief that if he was to later become an entrepreneur that investors could trust.
“They had to know that I had the background in fully understanding financial statements and how businesses worked inside and out,” said Horne.
Due diligence for young entrepreneurs
ThreeArrows Impact Partner founder and partner Sawa Nakagawa acknowledged that building trust can be a challenge for young entrepreneurs, particularly those who may not have a ready product, work experience or significant education in relation to other older entrepreneurs.
“How do you know if you’re going to be a good entrepreneur without having done all the due diligence?” she pointed out.
She believes one of the most important things investors who want to invest in young entrepreneurs need to ask themselves is what the best way of doing due diligence on these young entrepreneurs is.
Asks Nakagawa: “Does it work that we apply the same mindset as a private equity investor or traditional venture capitalists?”
Featured image: ALA vice president growth and entrepreneurship Josh Adler, Chanzo Capital managing partner and Angel Fair Founder Eric Osiakwan, ThreeArrows Impact Partner founder and partner Sawa Nakagawa, Cloudline founder Spencer Horne, and Rekindle Learning founder and chair Rapelang Rabana (Photo Credit: Mfundo Mbanze)