Raising Capital for Your Venture? – Questions to Consider
We receive inquiries and requests for funding every day of the week. Meeting entrepreneurs, understanding their plans and dreams is a core part of our day-to-day work. We love it.
We’re inspired by the creativity, ambition and character of entrepreneurs working to solve big problems in big markets. The fun and focus of our work is partnering with entrepreneurs to bring their ideas to life and multiply their impact.
Some entrepreneurs spend weeks and months writing lengthy business plans to submit to us and other investment firms. Others send a short teaser hoping for a meeting. Still others just send an email asking for funds. This note offers some advice as you think about approaching us and other investors. Our hope is that it will be a helpful guide to you whether or not we ever meet.
The first thing to say is this: we don’t have an application form. We don’t make investment decisions by ticking boxes. Our investment decisions are inevitably subjective, and the key criterion for us as an early –stage investor is the character, clarity, capacity and ambition of the entrepreneurial team. We invest in people first, plans second. For more on what we look for in the entrepreneurial team see What Novastar Looks for in an Entrepreneur.
Having said that, we are looking for clarity and conviction about the market opportunity you’re pursuing and how you are going about it. We suggest you take some time to test the rigor and clarity of your thinking on the key topics below. Your ideas and experience with these are what interests us.
Mission: Why does your company exist? What is its purpose? Take time to hone it down to a single declarative sentence. One sentence. Seriously. If you can’t express your mission simply, it is probably too complex to succeed.
Team: Who are you and why have you embarked on this exciting but difficult adventure? Motivation and a demonstrated capacity to execute (at more or less anything) is more important than impressive qualifications. We’re trying to assess character, capacity and ambition. How will you respond when things go wrong? Will you know when to persevere and when to pivot?
Market: Who is your intended customer? Paint a portrait for us. How many of these customers are there? Are you pursuing a niche strategy or one that addresses a mass market in East Africa?
Problem: What is the problem your customer currently experiences that your business will address? Is the problem you are trying to solve a serious pain to the customer? How does the customer currently address the pain?
Solution: What is your solution to the problem? What is your product or service and how well is it suited to the market? Why is your solution better than the alternatives available to your customer?
Innovation: What is the central innovation that makes your solution better than anything else available? What is the essence of your ‘unfair advantage’ over the competition?
Business Model: How do you make money? What are the primary revenue and profit drivers in your business? What are the key risks in your business model?
Efficiency: We want to partner with entrepreneurs who treat Novastar’s money like they would their own. We look for teams who deploy capital to achieve the greatest possible progress for every dollar spent. We expect some ideas and initiatives to fail before your company succeeds. The question here is: how are you going to make sure that those failures happen early and cheaply?
Milestones: What is the pathway for developing your business? What key assumptions are you testing? How much capital will you need to achieve each of your milestones? We pay little attention to detailed financial models until the business matures. We want to understand the basic economics of the business you’re building and the milestones you have set to prove the underlying assumptions.
Dream: When you dream in technicolor, what does this business look like 5 years from now? 10?
Exit: We are patient, long-term investors, but we eventually need to achieve an exit from our investment. Are you committed to selling a controlling stake in your business down the road? Who would be the buyers? Why would they pay a strategic price to buy your company?
Why Novastar? Why have you sought us out? What are you looking for from Novastar?