Post-investment: be prepared for growing painsFollow @MadeItInAfrica
If your business has survived the first two to three years, and you want to continue growing it, there’s a strong chance you’ll be looking for an investor. But be careful what you wish for: the dream investment and the glow of success will bring growing pains, which will be more painful than you imagined. Adrian Dommisse, founder and senior partner of South Africa’s Dommisse Attorneys, tells you what you should know about business life after receiving investment.
In many companies I’ve worked with, there is a moment not long after that first big investment when the founders look at each other and think, “Was R20m/R30m/R50m worth putting up with this?” Suddenly they are being faced with apparently unreasonable demands for new structures and processes that seem like a massive distraction from the core business focus. This is the moment when it feels like you’re drowning in red tape; the interfering investor has no clue how the business really works; you’re losing your competive edge; and the whole thing has been a horrible mistake.
If that describes you, take a deep breath. If there is any chance this could be you in a couple of years’ time, listen carefully: that pain is a normal part of the growth experience. Embrace it.
We South Africans have a fantastic ability to create new stuff out of nothing, sailing off into uncharted waters on makeshift vessels that achieve great things. Our maverick tendencies make us really good at startups. But if you want to make it out of the world of plucky pioneers into the big leagues, you are going to have to adapt.
Adapting means qualitative change, not quantitative: think of it as building the infrastructure that will maximise profitability when growth comes. Proper systems and corporate governance structures, compliance, regular structured forecasting, budgeting and reporting, all the infrastructure that will be needed to support the business safely through the next wave of growth.
In fact, a fair chunk of a typical R20-R50m (US$2.4-$6.05m) investment should be spent precisely on creating those structures. You can not become a R200m or R2,000m company if you’re still acting like a R2m company. All that tedious bureaucracy – the board charters, the audit committees, the renegotiated employment contracts – is laying the groundwork for the future. But bear in mind the important point: the actual cash should be the very least of what an investor in your business should bring. Far more valuable in the long run is the active involvement of someone who has been there and done that: the strategic alliances, the operational know-how, the connections and the experience and knowledge they bring.
Really tap into the investor’s experience in everything from product efficiency to bonus pool structures. If they have requested a board seat, make them work. Appoint them to the sub-committees and involve them in weekly calls. Appreciate their need for reporting and their need for transparency. How else can they give the guidance that will add a zero to your company valuation?
You will probably go through a phase of regretting the investor along the way, but that is okay, if you have chosen the right investor. If you have ever seen a martial arts movie, the story arc should be familiar: there is always method in the master’s madness.
There will be sacrifices, notably your complete independence of decision making. But the rewards of growth will far outweigh them. If you can prove that you have the strength and discipline to run a business in which you are the custodian of other people’s money, not just your own, the world is your oyster.