Local SMMEs have one of the highest failure rates in the world – with five out of seven South African startups failing within the first year, according to specialist advisory service Cova Advisory. So, for start-up founders, having a unique idea is just the start of the journey. 

Once the start-up has a product, strategic plan, and perhaps its first few customers, it’s likely going to need a capital injection – an area that many entrepreneurs struggle to get right. 

This is according to Simon Ward, founder and CEO of on-demand earned wage access platform Floatpays, who says that it is critical for founders to make sure the business is ‘investor ready’. For Ward, this means ensuring that the fundamentals of the business – its plan, leadership, financial reporting, clear valuation of the business and funds statement outlining where the money will go - will stand up to sceptical investor scrutiny.

Secrets to an attractive investor offering 

Ward offers valuable tips and lessons on this subject, having just recently closed an oversubscribed US$4 million seed investment round for his start-up. He explains what aspects of his concept - a fintech solution that allows employees access to a percentage of their earned-but-unpaid salary when needed – made it so attractive to investors.

Sell the dream

“When pitching to investors, especially in the early stages of your business development, be mindful that you are selling a dream of what could be, the art of the possible. Tell your story and don’t be shy to show your passion for what you are building. Speak with analogies the audience can relate to and understand but don't talk down to them. Keep your pitch deck easy to follow, avoiding jargon or overly technical explanations. State clearly what you’re asking from your investors so they understand what you need from them and what they can expect for their investment,” sums up Ward.

Passionate leaders who will stay the course

He attributes his success in raising capital to targeting what investors are looking for in potentially successful start-ups. “Investors are looking for founders who are passionate about the problem they are solving, any previous start-up success is a bonus, a strong founding team is a big asset. While not a guarantee of success, investors will take these as good indicators that the entrepreneurs will not give up when times are tough or the startup is struggling during growth phases”. 

Robust nuts and bolts

“After evaluating the leadership, investors will want to inspect the actual business model: the size of the market; expansion opportunities whether in product or territory; and whether the scale is aligned with a long-term vision for the product. Having a working prototype or early product release with traction in the market is a great start to a conversation. Then there’s product differentiation; the competitive landscape; and finally the financial modelling and cash flow management that will underpin of the business in the short to medium term,” says Ward.

Like-minded partners 

The final step in getting the business investor-ready, says Ward, is to target the ‘right’ investors by researching those who have invested in similar start-ups in the past or have a similar mandate. “Research and then search out investors who will provide more than just finance, especially in the early days of business growth, experience from your investment team can be an invaluable asset. For Floatpays it was important for us to partner with investors who also had a network of potential customers that we could tap into“.

Solve a real-life problem 

He gives the example of Floatpays; “We built our product to solve the very real world problem of financial insecurity amongst the continent’s workers and the knock-on effect that this has on their employers and labour productivity more broadly. We fundamentally believe in the power of earned wage access to build financial wellness and in so doing, positively change the trajectory of people’s lives. Africa is one of the fastest-growing populations but economically held back significantly by the lack of financial inclusion. In South Africa, when we started in 2019, research showed us that 76% of all employees were running out of money before the end of the month, with 51% of them effectively financially illiterate. This was and continues to be a problem for employees and employers alike.”

“We concisely explained to potential investors our non-traditional solution to this dilemma, which would reduce employee’s reliance on predatory credit such as payday loans, how we would enable them to save and help educate them to be in a position to better manage their money. We integrated with employers’ existing payroll systems, enabling employers to easily and seamlessly offer the benefits of on-demand earned wage access and paycheck linked savings to their workforce, making this is easy and efficient for HR teams as possible, we do the hard lifting using technology, not the overworked HR and payroll teams. We ensured that investors also understood that our product is positioned to make a sustainable positive change in people’s lives - we drive this through our free financial education and budgeting tool on the app. ” 

Don’t take it personally

He advises start-up founders to develop a thick skin and prepare themselves for rejection without getting downhearted. “Be prepared to spend a significant amount of time talking to investors for whom the product might not be on their mandate of investment, who might not invest in your stage of development, or have the mandate to invest in founders from a different ethnicity or gender than yourselves or can't invest in your market. But don’t be disheartened, take as much advice as you can from the meetings, be open to criticism and take the learnings, be bold and ask for introductions, the network of investors is very well connected and you never know who you might be introduced to next” concludes Ward.