What Entrepreneurs Should Be Asking Investors: Reflections from Sankalp Africa Summit 2019
FINCA Ventures co-hosted a workshop on seed stage investment leading up to the 6th Sankalp Africa Summit 2019. Joined by other impact investors and social entrepreneurs, the FINCA Ventures team co-facilitated a session that unveiled the types of questions entrepreneurs should be asking potential investors.
Sankalp Africa is always one of our favorite weeks of the year. For the sixth annual summit, 1,000 of our peers gathered in Nairobi during late February to reflect on another year filled with new experiences, new ecosystem entrants and new lessons learned. As valuable as the main event is, the conference’s pre-events hold just as much treasure. These tend to be more intimate gatherings, focused on having honest dialogue about some of the thornier topics in impact investing and social entrepreneurship.
While the FINCA Ventures team attended a number of these pre-events (kudos to FactorE for hosting a terrific session on the viability of productive use appliances, and AMI for leading a great workshop on talent development in the region), we jumped at the chance to co-host one of our own. Spearheaded by our friends at ANDE and Global Partnerships Social Venture Fund, we hosted a full-day event titled “Your First Capital Raise: An Intro to Seed Stage Investment.”
We were joined by several other impact investors, including Novastar, Beyond Capital, Vested World, Optimizer Foundation, and Mercy Corps Social Venture Fund, as well as seasoned entrepreneurs from Twiga, BlueWave and Umati. Throughout the day, facilitators spoke to 40-plus entrepreneurs about the ins-and-outs of a first capital raise, from financial modeling, to term sheets, to the pros-and-cons of different capital types.
Pulling Back the Veil on Impact Investors
For our part, FINCA Ventures co-facilitated a session with EWB Ventures called, “It’s a Two-Way Street: What You Should Ask Potential Investors.” It was our attempt to pull back the veil that often cloaks investors in our space. While we spend most of our days peppering potential investees with questions galore, this session was a reminder that an investment is a partnership; entrepreneurs should think critically about who they want to work with. Throughout the hour, we clarified investor types and fund structures, aiming to give participants the information they need to ask the right questions when they are talking to potential investors.
If you’re a social entrepreneur looking to raise your first round of capital, here are three important questions you should be asking your potential investors:
- What is your investment time horizon?This question will give you a sense of when the investor will be expecting their capital returned, and hence when they will be pushing you to provide them with an exit (e.g., a sale). If the investor is looking to exit in 3–5 years and you don’t think that is realistic, that’s a conversation best had upfront!
- How do you balance impact and returns? While some believe there is an inherent trade-off between impact and returns, others don’t believe any sacrifice is needed. Does your potential investor want commercial returns? What are they looking for in terms of impact focus? Knowing where investors stand on these dimensions will give you a good sense of what they will push you to achieve.
- What type of role do you expect to play post-investment? Investors can be very hands-on or hands-off. Both types can be very worthwhile, but you should know what you’re signing up for before agreeing to take capital. Set clear expectations so that both parties are on the same page.
Entrepreneurs: Don’t forget to Conduct Due Diligence on Your Investors
While by no means an exhaustive list, these questions can help entrepreneurs better assess if this is the right investor to be a co-owner of their business. We encouraged participants to not just trust investors at their word, but to do their own version of due diligence by speaking to the investor’s existing portfolio companies and asking for honest feedback.
We may be biased, but we had a terrific time co-facilitating the workshop — and early feedback has been positive! ANDE and Global Partnerships are already in talks to take the show on the road, facilitating similar workshops across the region, beginning with Kampala in April 2019 (more details soon).
Thanks to all our partners involved in running the event — we can’t wait for the next one!