New Private Equity Initiative for SMEs

Great news for SMEs looking for start-up or growth finance is that another new initiative, this time through private equity firm Trinitas is injecting further finance into promising business plans. The company has raised R430m to invest in high cash-generating businesses and wants to increase this to as much as R1bn in the next 12 months.

Executive director Andrew Hall said yesterday Trinitas had been raising funds for the past 18 months, in one of the "toughest ever environments" because of the global crisis.

It had found investors who were convinced there was value in the company's business model, which is focused on mid- capitalised companies.

Trinitas Private Equity is being run by private equity experts John Stipinovich, Soteris Theorides and Mr Hall, who were also shareholders in the fund. Other shareholders are Sasfin and the black women's empowerment group Peotona, which has a 25% stake.

At its first closing in March, Trinitas Private Equity had raised R430m from five local investors from sectors such as banking and pension funds.

"We are happy with the level of interest by investors and ideally we want to raise more money and the fund is open for another 12 months to raise between R750m and R1bn in total, including the R430m we have raised," Mr Hall said yesterday.

Trinitas would focus on companies with enterprise values of between R150m and R1bn, because it believed companies in this segment had greater opportunity to create value for investors, including achieving organic growth in their sectors.

Mr Hall said the fund would invest from R50m to R150m over three to seven years in virtually any sector as long as it made business sense, particularly from a cash generation perspective. But mining was excluded because of its highly cyclical nature.

It had already invested R50m in a personal care and cosmetics manufacturer, Le Sel Research, a company based in Midrand and which makes products for customers such as Woolworths, Unilever and Aspen .

There were opportunities to invest, particularly in companies where management wanted to buy out the owners, or those in which the owners wanted additional capital and did not mind their shareholding being diluted.

Mr Hall said the recession had exposed small and medium-size companies who had overborrowed or expanded without any strategic intent, adding capacity which became idle overnight as demand collapsed. " Even when things are going well, it is better to keep the business lean," he said.

Source: Business Day

IDC may issue bonds to boost equity finance

Great news for South African entrepreneurs and new businesses with business plans waiting to be financed, is the information coming through today that South Africa's Industrial Development Corporation (IDC) may issue bonds and dispose of 26 billion rand worth of its stake in listed firms to raise money for new investments, its CEO said on Tuesday.

With regular banks in the country still not lending at the level required to stimulate the small business sector and especially new businesses starting up, the government wants to support the growth amongst entrepreneur with a much needed cash injection.

The state-owned development finance institution has been tasked by government to invest in the private sector to support economic growth and stem job losses after last year's recession.

The IDC lends to medium-sized businesses at more favourable rates and terms than commercial banks.

In a presentation to lawmakers in parliament, chief executive Geoffrey Qhena said the company needed 9 billion rand capital injection by 2015 to keep its equity/debt ratio below 60 percent and it would consider new sources of funding such as bond issuances.

"IDC's ability to attract other investors to projects and thus leverage more private sector investments could reduce its funding needs," he said.

"In the base case, IDC would need to raise 53 billion rand of borrowings (64 billion rand in the high road scenario)," he said, adding the company would dispose of 26 billion rand worth of shares it owned in listed companies.

The IDC who last year approved 1.4 billion rand in loans to companies distressed by a global and local recession has targeted the bio-fuels, automotive and energy sectors for investment and set aside 3.2 billion rand for 2011 to help companies hit by a recession.

Last year it approved 1.4 billion rand in loans to companies distressed by a global and local recession.

Source: Thomson Reuters

How to write a faster business plan

For many entrepreneurs, writing a business plan is a tedious process. Entrepreneurs are often more contempt with being practically involved overcoming real challenges than sitting down and writing a 30-40 page document. Unfortunately, a comprehensive business plan will almost always be a requirement from Venture Capital firms as it will allow them to get more of an insight into the issues present within the business business.

Before starting writing your business plan, do the research. Find out if there is a market for your product or service. See whether you are capable of filling that market, and that it is realistically profitable. You may discover challenges that will force you to rearrange your idea before spending weeks constructing a business plan.

Focus on Profitability

If investors and lenders are to be attracted to your business plan, you must show:

that your competition is large and plentiful, proving you operate in a large and growing industry
that you can outmaneuver that competition by niche marketing and setting up barriers to entry

Many entrepreneurs make the mistake of claiming they have no competition. This may or may not be true in your case, but investors don’t believe in one-business industries. Healthy competition is evidence that your industry is growing, which allows your business to grow within the industry.

The paradox is that you must show you can overtake said competition somehow. You can do this by proving a) you have identified and can master a niche market within that industry, and b) you have created barriers to entry (e.g., proprietary technology, exclusive information, a unique management team, etc.) This shows that your company is the only one equipped to fill the market need.

Logic is a key for a investment winning Business Plan

A business plan is essentially a logical argument for why and how a business will succeed. The logic is as follows:

1. Opportunity: There is an unmet market need.
2. Resources: Your business has the resources to fill that need.
3. Methods: Explain how your resources will be used to fill the need.
4. Results: Show how you and your investors will profit from the way your business uses its strengths to fill an unmet market need.

Financial Assumptions: Spell It Out, From Seed to Exit

The imagination of the investor is where fundraising efforts go to die. Do not let them imagine. Show your figures. Explain revenue and cost projections, from the start of your business all the way through the liquidity events that will benefit the investors. Use industry research and case studies to support your pro forma (projected) financial assumptions.

Just Say No to Format Creativity

As sure as there is grammar in an English sentence, every business plan has a standard format. That format, in this exact order, is:

1. Executive Summary, 
2. Company Analysis,
3. Industry Analysis,
4. Customer Analysis, 
5. Competitive Analysis, 
6. Marketing Plan, 
7. Operations Plan,
8. Management Team, 
9. Financial Plan, 
10. Appendix. 

Yes, you can be creative in the content of your business, and the ways in which you go about marketing and running operations. Creativity is what allows entrepreneurs to win. But the format of the business plan must be absolutely adhered to.

Want to finish your business plan faster? Click here to gain access to the latest in business plan software to write for a faster and much more efficient business plan.

Find financing by searching cleverly

Although South Africa’s economy is already showing strong signs of growth and the economical difficulties of 2009 starting to feel like a distant past, may entrepreneurs are still finding it difficult to secure business financing. This, however does not have to be the case and as long as your business plan supports you and your feasibility study has shown that they there is potential in your market, as the saying goes, search and you shall find. To put it more poignantly, perhaps we can say, search cleverly and you shall find!

Here are a few things that you can do to ensure that you are indeed searching cleverly:

Pick your Market

The market is probably the most important factor driving the success of the start-up market as a whole. If there is a strong demand from your target market, even a just adequate product can succeed, as the “market pulls the product out of the start-up.

The reverse is seldom true. Even great products often don’t succeed in tough markets, and very rarely do they create new markets. So pick not only your battles, but also pick your battlefield.

  

Show Momentum

Unless you’ve invented a way to turn lead into gold, these days you must show paying customers or enthusiastic users to prove your value to potential investors.

There are several indicators you can point to in order to demonstrate that your business has real market traction:

• New customers/beta testers (do the dogs eat the dog food?)
• Short sales cycles (are customers eager to sign on the dotted line?)
• Renewal rates (once customers use the product/service, do they come back for more?)
• Press coverage (do you have positive write-ups in the press?)
• Testimonials (are your customers willing to testify just how your product solves their problems)
• Believe in your team
• It has become cliché to emphasize the importance of people as being crucial to the success of an endeavour. But in a start-up, the importance of having a good team is not nice to have – it’s a necessity.

Work with the right people

Hire people you can trust to do the right thing by your company, as if it were their own, after all it is! Unlike a large organization, there is no room for slackers or primadonnas at a start-up. Make sure you hire people who can envision a broad strategy, and back themselves to execute against it.

At all times, be wary of “experts.” Experts can tell you how to do something that’s been done before, and do it really well. For sure, this is important in certain situations. But never forget that the whole point of a start-up is to develop new solutions to existing problems.

Find Validation from the doubters

It is often said that nothing worth doing is ever easy. When you embark upon the roller coaster that is starting a new company, you will find many naysayers who will tell you that it can’t be done. This is actually a good sign--what they really mean is that they don’t know how to do it, and therefore believe that you won’t be able to do it either. Remember, if they did know how to do it, you’d already be too late.

The path of an entrepreneur is more often than not, a lonely one. Few people will be able to see through your eyes. So have a long-term vision that you can clearly explain and around which you can rally your team, and keep you focused during the challenges that inevitably arise.

Back your vision with a firm belief in innovation. Steve Jobs once said that innovation is the single biggest difference between a leader and a follower. As you innovate and your vision takes root in the market, you will often hear cries of denial bordering on protest--which is the most common reaction of a market segment that has been disrupted.

Believe in your idea but also don't be to afraid of change, remember that the market and demand is changing constantly so you may also have to.

Using the latest in business plan software technology can assist you with tracking changes in the market, taking advantage of new business opportunities and help you gain access to business finance fast.

Choosing a Venture Capital Partner

Finding the right venture capital fund to support you wityh your business may be a challenging task. There are 10,000 venture capitalists and only top 1% are any good. Be smart about smart money and learn from the top 1%.

What do some of South Africa's best venture capitalists have in common? How do they consistently obtain supernormal returns? How do they add value to entrepreneurs they have backed? Venture capital is an art as well as science and the best way to learn it is from successful masters.

The Way of the VC - Top Venture Capitalists on Your Board is essential reading for venture capital practitioners, including partners, principals, analysts, consultants and limited partners – both institutional and private. It could also prove useful to students of finance who want a better understanding of what goes on in the venture capital world.

Venture Capital funds are the fastest growing sector of the financial industry, and possibly the least understood. In this book, author Tan Yinglan provides a primer on what some of the world’s best venture capitalists have in common. How do the world’s top venture capitalists consistently obtain supernormal returns? How do they add value to entrepreneurs they have backed? Why is a top venture capitalist like a skilled chef?

The Way of the VC shows you what premier VC firms such as Kleiner Perkins, Draper Fisher Jurvertson, and Flagship Ventures look for in winning ventures and how they offer venture assistance, and how every entrepreneur can benefit from learning leading-edge techniques.

The Way of the VC offers you:

A “silver bullet” technique in near-perfect communication with VCs

A guide to coaching start-ups effectively

The ultimate entrepreneurial development manual

Insight and advice acquired by interviewing dozens of top-tier venture capitalists

An easy read

Translating what really goes on in a venture capitalist’s mind into structured processes that readers can use to promote their own ideas, this book will be an illuminating read for venture capital practitioners, including partners, principals, analysts, consultants and limited partners – both institutional and private.

Venture Capital Focus on Growing Firms Says Shuttleworth

'Venture capital is better spend on existing and growing firms' This is the opinion of South African venture capital company HBD, which is still strongly associated with information-technology entrepreneur Mark Shuttleworth. The organisation expects to have disbursed some R100-million by year-end as part of its second fund, launched in late 2006.

CEO Julia Long tells Engineer-ing News that it is currently interrogating several potential investment opportunities, mostly in high-technology companies, but not necessarily information-technology enterprises.

Its so-called ‘HBD Fund2’ will run for two years, with Shuttle-worth having made some R150-million available to the initiative. However, Long says it is possible that more than R150-million could be disbursed over the period, citing a possible investment figure of R200-million.

Unlike the initial HDB fund, or ‘Fund1’, which focused on pure start-up-type enterprises, the current facility is seeking to finance more “mature” businesses that already have products, services and customers.

Long says the idea is to fill a gap in the South African capital market by offering equity funding to enterprises that are keen to either accelerate domestic growth or embark on an internationalisation endeavour.

Given this greater level of maturity, the size of the investment tranches has also been raised to between R10-million and R25-million – Fund1’s limit was set closer to R10-million. “By contrast, the companies we financed between 2000 and 2005, when Mark set aside R70-million for venture capital, were generally at a far less developed stage, some even at the concept stage,” Long explains.

She argues that there is still a desperate need for ‘angel investors’ to support start-ups, but that, following a broad-ranging analysis of the South African environment, HBD (short for ‘Here Be Dragons’) decided there was greater opportunity and less risk slightly further up the value chain.

She says the fund is open to just about any sector, excluding direct investments into real estate and agriculture, and hints to the fact that HBD is in the final stages of a due diligence involving an investment into a leisure-and-entertainment enterprise that offers a “unique” restaurant experience. It is also interrogating an equity position in a logistics enterprise.

To date, though, capital from Fund2 has been deployed in only two instances: an investment into EDH, which develops products and services for the sport, defense and industrial- inspection markets, including a radar-based solution used by broadcasters to track and display shots made by golfers during tournaments; and an investment into a company called incuBeta, which is an Internet search-engine marketing business, with a turnover of R50-million a year.

Long says its basic criterion remains that the companies be established and domiciled in South Africa.

She anticipates that HDB will remain invested in the companies for a period of about five years, and says its partners accept upfront that HDB will be seeking to make a profitable exit at some point. These exits can take various forms, from selling the business to similarly-styled entities, through to an initial public offering, most probably through a listing on the JSE’s small- company board, AltX.

The company has already exited from some of its initial investments made during the roll-out of Fund1, but Long admits that most of these have been conducted at a loss.

“We are acutely aware of the risks involved and don’t take them lightly. But our assessment is that, if we invest in ten companies and spend R100-million in the process, just one might turn out to be core. But that core investment will offer a return that more than covers the upfront investment with a healthy return, with the balance of the disposals offering a bonus over and above that return,” she concludes.

This may be a typical move by venture capital funds in the current economic climate trying to limit their risks and increase returns from businesses already proven to be successes in the market. Despite the importance of business finance being available to this market segment it should not be forgotten that with many banks trying to do the same the investors and banks in South Africa should not forget the army of entrepreneurs hoping to bring their own ideas to the market. Both Shuttleworth and the growing firms his company now invest in was at some stage a start-up and was it not for someone investing in these businesses at early stage they to may not have been in the position they are in today.

Starting a business with Venture Capital Funds

Both Venture capitalists & Business Angels are really just investors in your business providing business finance together with experience, business links and support. This is because the objective is still the same. The business or individuals involved will normally be reviewing tons of business plans until one is found that have some synchronicity with the values and objectives of the funder.

Venture capitalists & Business Angels will normally find you through a combination of ways. As an entrepreneur looking for business funding you may be found either through joining a network of investors, sending your business plan to investors that you know of, or in some rare cases they may find you, either through a referral or recommendation from someone else.


Once contact has been made and a background check has been done, the management team will contact the entrepreneur so a meeting can be set to talk more about the idea that was envisioned by the person. If everything sounds good, then the funding will take place similar to how a student in school is able to get a grant in order to conduct the project.
The difference here is that the Venture capitalists & Business Angels will hold a certain percentage of shares in the business. This means a team of people will be working with the entrepreneur in seeing things through. This is done to protect the investment given by the company to ensure its success in the long term.

One of the industries being funded regularly by Venture capitalists & Business Angels is the information technology industry. Despite that, the chances of someone in another field who would like the same thing to happen is still possible because there are also companies out there looking for the next big break.

Everyone becomes a winner when VSs, business angels and the entrepreneur sign an agreement and turn that idea into a reality. This is because despite the risks involved in starting something new, the determination of the entrepreneur and the experience of the Venture capitalists & Business Angels can easily tackle the bumps on the road by steering clear from it.

Venture capital funding is when a startup business or an existing one needs funds from outside people to sustain or keep it growing. While there are banks that can help do this, it is easier to deal with private individuals since the interest rates are not that high and these supporters become strategic partners.

So where do you go for venture capital or business finance? Depending on where you find yourself, most countries today will have venture capital associations or networks where business investors and entrepreneurs are introduced and do business. Do a google search for business finance, venture capital or angel finance in your country and you are likely to be taking the first step to gain funding for your new business.