Tech Start-ups: What it takes to get better deals

September 10, 2013
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"The good news is that the Kenyan tech industry does not suffer from some sort of malignant impairment that deprives us off high returns to our innovation. "
“The good news is that the Kenyan tech industry does not suffer from some sort of malignant impairment that deprives us off high returns to our innovation. “

The spotlight over Dimension Data’s acquisition of AccessKenya at Kshs 3 billion has demonstrated that contrary to the myth shared of tech in Kenya, there is monetary reward in our innovations if only we can demonstrate their value. Previous mergers and acquisitions and venture capital offers in Kenya have attracted such untenable offers that at some point, it made sense to doubt the real value of ICT products developed in the Kenyan tech space.

The good news is that the Kenyan tech industry does not suffer from some sort of malignant impairment that deprives us off high returns to our innovation. The bad news is that we are victims of our own injustices. We fail to plan ahead, to treat our innovations as a business start up or a long term product to be consumed by the larger market. Instead we carry it on an excitable project that indulges our skill and expertise. This is reflected in the nature of investors such a project would attract.

An investor will not spend a huge amount financing a short sighted project whose longevity is uncertain. To the finance world, this is considered a high risk- low return project. In other words: no thanks.

So what does it take to get a better deal?

Develop a long term Vision for your innovation

As a programmer or tech-preneur, few investors expect you to have thorough comprehension of business development skills. However an investor will expect you to have a fairly convincing vision for your development. This demonstrates basic business acumen that would appeal an investor to at the very least, make time and listen through your case.

A vision is a clearly outlined end goal of how the developer would like the product to look, feel, perform. Having a vision for a product helps define the product from the onset and guides subsequent operational procedures ensuring that there is little deterrence to actualizing the envisioned product. A vision also serves as guiding principle- a measure for project progress.  For an investor, long term project financing has often been considered a better investment to short term projects. Investors will be predisposed to focus on an innovation if they can visualize the future picture of the innovation. By communicating the project vision, you appeal to an investor’s search for longevity in investment prospects.

Product Sustainability

 

This refers to the innovation’s staying power. In a rapidly evolving industry, it is a concern to the investor that their investment will not go into a fad- product, which may not be around long enough for them to get substantial returns on their investment. To address sustainability, one needs to consider whether the innovation addresses an actual market need. The market informs the sustainability of the product, if the product cannot fit into long term use by your market it lacks staying power.

Proper Market Research

Proper market research refers to thorough knowledge of the technology industry and of your intended audience. I once watched an episode of Shark Tank where a candidate after making an impressive presentation to the financiers was asked: “Who are you selling to?” The panelist was inquiring about the target audience for the product the person had developed. After a few stutters of response, the candidate was disqualified for ‘not having a clear picture of his target market.’

As a developer of technology products, it is important to demonstrate that your innovation addresses a need in the market that is either yet to be addressed, or one whose current mechanism of address could be improved upon. Moreover, one has to be specific in their selection of a target market with concrete rationale justifying the market targeted. Market understanding illustrates your product’s positioning in addressing their needs and will be a convincing position for your presentation to the investors.

Extensive market research also allows you to create a convincing case demonstrating industry awareness and that you are on top of industry trends. It also gives you authoritative insight on the tech industry which is an asset when making your case to the investors. Finally market research also allows you to value your innovation competitively, with sound justifications for the asking price.

The Financial Outlook

Even though you are a programmer with alien knowledge of MS Office, the investor will expect you to demonstrate some form of financial outlook for you product. This includes development of a budget justifying your ask. For an investor, an entrepreneur who does not know how much they need for their project, or how they intend to distribute their capital for optimum value generation will be treated with skepticism. It also places the investor as a high risk investment and one that is not a priority.

It is a very good idea to have multiple budgets and financial forecasts developed in your business plan- a worst case financial outlook that works with the least amount of financing the project would need and the returns expected, middle case scenario which works with a standard budget and best case scenario which considers an optimum financial outlook. Such weighting allows you to different growth models for scaling your business.

 

By Eva Warigia, blogger at Kachwanya.com
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