Home Business & Finance What investors are looking for in young entrepreneurs’ ideas

What investors are looking for in young entrepreneurs’ ideas

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By SARAH NANJALA, Source: Business Daily

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In Africa, country ranked a top innovation hub in knowledge, technology, creativity.

Over the past decade, Kenya has witnessed a significant rise in the number of investments with data showing the country attracted 54 projects totalling $2.9 billion (Sh290bn) in 2019 alone.

On the international landscape, Kenya is placed at position 77 out of 129 in the Global Innovation Index and across Africa it is ranked as the most innovative country in terms of knowledge, technology and creativity.

Despite this attractiveness to foreign investment, there are still high rates of unemployment in the country. According to the 2019 Census, 39 percent of the youth are unemployed, the highest rate in East Africa.

Although government entities show the challenge lies with costly manufacturing and low access to investment, the problem, however, seems to be the fact that most youth seem to be unaware of how to tap into sources of investment.

They also lack knowledge in the different investment products such as equity, debt financing, catalytic funding.

Value innovation

ManPro start-up founder Linus Wahome notes that most youth go wrong from the onset as their definition of entrepreneurship is often misplaced.

“The average youth in Kenya looks at entrepreneurship as a hustle, where they want to make deals or be a broker and make money through margins. However, from an investor’s point of view, entrepreneurship is about providing value beyond offering solutions,” he said.

ManPro recently received Sh20 million in investment with an initial Sh2 million accessible immediately and the balance pegged on performance.

The start-up offers a digital solution to enable accountability, accuracy and transparency in property and infrastructure projects and has devised a tool that seeks to address cash flow in construction as well as provide a real-time means to plan and track materials used in building.

Mr Wahome noted that to get investment, it is essential to show the value the business is adding, either through affordability, saving time or disrupting the market.

“It is not enough to just have an idea, there must be something to show for it. Investors want to see passion for a business project and this will be shown by how much time and money the entrepreneur invests in their idea,” he added.

A significant factor that many often ignore is research.

Mr Wahome noted that entrepreneurs are better placed for investment when they do adequate research of the sector they are in as well as the solutions they offer. “People need to be hungry for information to grab the opportunities that are available, including business ideas as well as where to find investors for your enterprise. It is also important to document your journey as an entrepreneur,” he said.

Industry GAPS

Mentorship is critical when looking for an investor, particularly those operating within the same industry.

These mentors are important in giving pointers on market strategies as well as how to manoeuvre as well as have a sustainable and scalable enterprise. This mentorship is often available from incubator and accelerator companies such as Pangea Accelerator, who guide entrepreneurs to get to the desired level of investment.

Pangea Accelerator’s chief executive Jonas Tesfu notes that there is a gap in misunderstanding by youth entrepreneurs, who often do not know what investors want and consequently find themselves locked out of investment opportunities.

“Kenya has experienced rapid maturity in the past five years, there is now more organisation and so it is an exciting time for entrepreneurs. However, most people do not understand how investors invest money and what the prerequisites are for getting investment,” he said.

As an accelerator hub, Pangea seeks promising entrepreneurs and provides them with business support as well as connecting them to potential investors. Through their investor programme, the organisation recruits about 20 to 30 companies who then undergo a six-month training that prepares them for investors.

“The programme helps entrepreneurs become investment-ready for either local or foreign investors. On occasion, we also co-invest with other investors into these companies. Kenya has a lot of success stories particularly in fintech, which has further helped investors be more open to working with Kenyan entrepreneurs,” Mr Tesfu noted.

Ticking boxes

To get the right investor, there are certain check boxes that the entrepreneur needs to tick, among them showing evidence of the business as well as its ability to be scaled up once investment goes into it.

Additionally, the idea should not just be on paper. Entrepreneurs need to have a product or service in place, even if they are just in the initial stages.

According to Mr Tesfu, it is also better to work as a team as it is difficult for investors to invest in one entrepreneur.

“The team needs to be familiar with the sector that they operate in as investors usually seek entrepreneurs who have insight of the solutions they are trying to offer. So, if you are providing solutions for farmers, at least one member of the team needs to have history with farming,” he added.

In a report by Afrilabs last year, the number of innovation hubs across Africa have been increasing steadily. As of October 2019, there were at least 643 hubs on the continent, comprising of incubators and accelerators. Kenya alone has more than 50 innovation hubs, most of which are focused on financial technology (fintech), energy, health and education.

According to the report, these innovation hubs have largely been sector-agnostic, meaning that they are tailor-made to offer support to entrepreneurs or emerging companies that tend to deliver high social impact, such as education and agriculture.

With a fast-growing economy and the government’s Big Four agenda in place, scalable solutions surrounding sectors such as education, healthcare, affordable housing and agriculture present lucrative investment opportunities.

Disrupting the market

Organisations such as Habitat for Humanity are keen partners for entrepreneurs in the housing and construction industry.

The organisation, through its Terwilliger Centre for Innovation in Shelter, launched the ShelterTech Accelerator programme in November 2018 to help nurture promising companies bringing shelter solutions.

George Mugweru, a specialist at the Housing Market Systems for the Programme, noted they also accelerate early-stage companies through offering support to attract and raise capital for their businesses.

“As an organisation, we are aware that philanthropy is not enough to dent the housing deficit or cause a notable disruption in the market that is why we launched this program so that we can stimulate the market in order to serve the low market people to achieve this, we shifted focus on looking for ways to work with market actors in the sector,” he said.

The six-month ShelterTech Accelerator programme involves intensive weekly training sessions and lectures, group and one-on-one mentorship sessions, as well as access to industry experts such as financial institutions, government agencies and other key stakeholders in the property and housing market segment for coaching.

Mr Mugweru emphasised on the need to find ideas that will change how the market currently operates and bring a disruption to normal housing solutions while maintaining affordability and quality homes.

“A good number of the entrepreneurs that we have brought on board in are young and most of them are just past the idea stage and do not know how to navigate through the business environment, including getting funding. This is the purpose of the accelerator programme,” he added.

Currently, seven start-ups within the housing sector have been linked to local and international investors having access to more than Sh50 million.

Mr Mugweru further noted that ShelterTech will also provide a catalytic funding worth 12.5 million to some of the early stage start-ups to support their growth milestones towards investor linkages.

“Investors primarily look for commitment and dedication from entrepreneurs. Investors will never fund an idea; therefore, young people need to grow their ideas to reality before seeking outside investment. It is also important that ideas be geared towards emerging markets and have the potential within their environment to grow and flourish.”

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