Technology start-ups in Africa face many hurdles in their pursuit to access funding. Kenyan accommodation marketplace website SleepOut recently secured US$200,000 in seed funding from the Dutch-based Africa Media Ventures Fund (AMVF). The one year old start-up intends to use the funds for expansion into ten countries in Africa and the Middle East. SleepOut co-founder and chief executive Johann Jenson shared with How we made it in Africa’s Dinfin Mulupi five tips that entrepreneurs can use to successfully secure funding or investment.
1. Be passionate about the right idea
Jenson advised entrepreneurs to sift through ideas they are passionate about and test out those that have the potential to be profitable.
“You should build a profitable product. Don’t build something because it is [just] this idea that you have and by all means it has to work. I think most of the time people would settle for just any idea because it is the one that they are passionate about. You actually need to be passionate about it, but you need to be passionate about the right idea,” said Jenson.
2. Follow the money
“It sounds very commercial and kind of cynical but often a lot of start-ups, especially in East Africa… don’t necessarily look at the sector that they are working in and actually determine whether there is a market there or not,” Jenson noted.
According to Jenson, many entrepreneurs start with ideas that they are passionate about but they do not focus on how to monetise them. He explained that one of the reasons why SleepOut is expanding to Egypt is because the country attracts much more tourists than Kenya, thereby offering higher growth margins.
“There is certainly money to made in East Africa in accommodation booking but the market is very small if you compare it with other tourist destinations. You can build a product that a few million people will use or you can build a product that a hundred million people can use. That is why we have decided to shift focus (to the Middle East and Indian Ocean Islands markets) because we realised there is a bigger market there,” said Jenson.
3. Look at your competition
Jenson advised entrepreneurs to do market research and look at the competition they are likely to face in the market.
“Is the market saturated? Do you have a lot of other talented, well-funded teams or existing market leaders that are very good at what they do? Part of the reason why we are not going to South Africa is because we know that there is far too much competition there and so we try and find areas where there is less competition,” he said.
4. Be transparent
Jenson reckons that investors like companies that are not trying to hide things.
“If you are building a genuine product that people need, there is no reason that you would need to hide certain information. Ideas are cheap. Investors know that they can come up with ideas… it’s about finding the right team. They are looking for people that have the skills that it takes to build a start-up to a mid-sized company.”
5. Chose the right investors
While getting start-up funding is a challenge for most entrepreneurs, Jenson argues that a good product should naturally attract several investors. He cautions entrepreneurs against rushing into signing the first deal out of desperation.
“Be patient, don’t jump at the first opportunity… look at what that investor has to offer,” said Jenson. “There are different types of investors out there. We have institutional investors, which are probably the best for tech start-ups because they have the experience; they are looking at your product from… a very objective point of view. They know what the numbers should look like, they know the risks and so I think… they are easiest to work with.”
He continued by saying: “Investors are in it for the money; they are not just helping you out because you have a great idea. What are they looking for? Are they looking to flip your company within a few years? Are they in for the long-term? There is a lot of ways to find out what their interests are…”
The key people an entrepreneur will be dealing with at the investment fund matters a lot, according to Jenson.
“We had offers from other investment funds… but we chose the one that we went with because we got along with them. They were personable, they were down to earth, they wore jeans. They made us feel like our opinions and ideas were valued… when we had discussions, they listened.”