Playbook For Raising Venture Capital Funding In South Africa

By: Keet van Zyl, Knife Capital

Entrepreneurs constantly disrupt the balance of competition by unlocking inventive commercial opportunities and creating new markets in doing so. This can sometimes be done by bootstrapping (with minimal financial resources and no venture capital) over time, but because of the rapidly changing environment innovation-driven entrepreneurs operate in, some form of risk funding is usually required to scale viable opportunities.


But for many South African SMEs this remains theoretical. While VC is a recognised alternative asset class in many countries, it is still an emerging industry in SA with few (but increasing) VCs around that have limited funds to deploy. Local entrepreneurs seeking risk funding should therefore get resourceful to increase their VC funding chances… This is how:

1. VC Backable Scalable Business Model?

Venture Capital should not be the go-to funding choice for everyone starting a business. A Startup is a high growth potential company in search of a repeatable and scalable business model.

Once it gets product/market fit and some traction through the scale-up phase it turns into a so-called ‘Gazelle’ — an extremely fast-growing company [not measured off a low base], which maintains consistent expansion of revenue, employment and/or profit metrics over a prolonged period of time.


2. Target an Investor Universe



3. Get Referred

It is not necessarily a well-known fact that most VC deals originate via leads passed on from within the wider trusted networks of the VC. Use the concept of six degrees of separation to find a way to get introduced. Or trawl the Startup scene for networking events. A warm referral to a VC goes a long way to securing that first meeting.

4. Refine Your Elevator Pitch

You need to be able to convince a VC that your Startup is worth investing in by communicating all of the core elements of your venture in a clear and concise manner. Define your company’s purpose, perfect your one-line pitch and strive to tell a 4-word story. Then let your inner circle of friends and mentors know what you are up to.

5. 1-Page Teaser Doc

Startups should always have a clinical ‘1-pager’ summary of their business and the investment requirements on hand. Mainly used to immediately follow up when your elevator pitch worked and a potential funder or partner says: “Sounds interesting, can you send me some more info?”. Also makes it easier and more professional when your referral network does an intro by leading with this 1-pager.

6. Standard Pitch Deck


7. Granular Financial Model

Like it or not, at some level all roads lead to the assumptions behind your financial model. VC’s have heard it all from the ever-present “these projections are conservative” to “real life won’t mimic excel anyway so what’s the point of building a model”. Build a model. And make it granular.


8. Due Diligence Data Room

A data room is a place where the SME places copies of the financial, legal and business documents that define the history and future of the company. It can be physical, virtual or a combination thereof and is accessed by potential investors during due diligence — usually after having signed a “Non-Disclosure Agreement”.

Keep it updated before approaching VC investors as two things happen in an investor’s mind when a Startup says: “I can give you access to my Virtual Data Room”… One: they know that this entrepreneurial team has got their act together and managing the partnership post-investment will be a pleasure; and Two: there is a perceived sense of urgency as other investors may already be analysing the information. Have a limited data room ready with just the key information that you are willing to share and then also a comprehensive one for when negotiations heat up.

9. Push for Term Sheet

Real VCs are in the business to invest. If you don’t get a Term Sheet or Letter of Intent from a VC to invest within a reasonable timeframe something is wrong. This could be mainly one of two things: For various reasons there is no real interest from the VC and you are in the “Slow Maybe” pile; or you have not enabled the VC with enough relevant information to make a “Yes/No” decision.


10. Avoid Deal Fatigue in DD Finalisation and Legal Closing

This post is not about the intricacies of the due diligence process or legal negotiation tips. But once you have ‘passed’ the due diligence exercise there is usually a working list of things to get done as suspensive conditions to the potential transaction, and the legal closing process takes its course. Some legal tweaks are inevitable.


…And put the Champagne on ice!

About the author: Keet van Zyl is co-founder and partner at Knife Capital, a Cape Town-based venture capital firm.

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