Podcast: 99% of Companies Aren't Made to Receive VC Funding

Not every good business is a venture capital business, and that is fine. In this episode, Collins Gilbert of Ventures Platform Fund explains what VCs look for in African tech startups before investing and how founders can position themselves better for investment.

Key takeaways

• Market size and barriers to entry shape VC appeal. Founders should target investors who share their mission and understand the market they are building in.
• Currency instability is changing priorities. Because of currency volatility across Africa, VCs are focusing more on startups that earn revenue in foreign currency.
• Debt needs are growing. Startups in Africa increasingly need debt, which could lead to hybrid VC models that combine equity and debt.

About the guest

Collins Gilbert is an Associate on the Platform and Networks team at Ventures Platform Fund.

Is venture capital right for your company?

Venture capital suits a narrow set of businesses: those that can grow very large, very fast, in big markets. Venture funds need a few investments to return many times their money, so they look for companies with that potential. Many excellent businesses do not fit that model, and that is not a failure.

Before you pitch a VC, ask whether your business matches what venture investors need.

• Market size. Is the market large enough to support a very big company? A profitable niche can be a great business without being a venture business.
• Barriers to entry. What stops competitors copying you? Technology, network effects, data or regulation can all create a defensible position.
• Speed of growth. Can the business grow quickly with more capital, or does growth depend on things money cannot speed up?
• Currency exposure. For African startups earning in local currency, exchange rate swings can shrink growth when it is measured in dollars. Revenue in hard currency reduces that risk, which is why it attracts investor attention.
• Capital needs. Some businesses need debt as much as equity, for inventory, lending or working capital. A mix of funding may suit them better than equity alone.

If the honest answer is that venture capital is not the right fit, there are other paths: revenue, grants, debt and strategic partners. Choosing the right funding for your business is a strength, not a compromise.

Questions to ask yourself after listening

• Could my company realistically become large enough to return a venture fund?
• How much of my revenue is exposed to currency movements?
• Would debt or revenue-based funding serve my business better than equity?

How to position your startup for investment

If venture capital is the right path, a few steps make your company more attractive to investors.

1. Target aligned investors. Pitch funds whose thesis and portfolio match your mission and market, rather than every fund you can find.
2. Show you understand your market. Explain the size of the opportunity and what stops others from taking it.
3. Reduce currency risk where you can. If some customers can pay in hard currency, or your pricing adjusts for inflation, say so.
4. Be clear about capital needs. Explain which parts of your plan need equity and which could be funded by debt.
5. Show momentum. Regular updates with steady progress build confidence before you formally raise.

The episode offers a VC's view of what makes African startups stand out, which can help you sharpen each of these points.

Who should listen

• African founders
• Entrepreneurs building their first company
• Startup advisors and ecosystem builders

Put the advice to work

If VC is not the right fit, explore The Founder's Guide to Non-Equity Funding. If it is, the Top 75 Early-Stage Investors in Africa list shows who is actively investing.

VC fit questions founders ask

What does venture-backable mean?

A company with the potential to grow large enough, quickly enough, to deliver the outsized returns venture funds need from their best investments.

What is a hybrid VC model?

An approach that combines equity investment with debt. It can suit businesses that need capital for lending, inventory or working capital as well as growth.

Can a non-venture business still raise money?

Yes. Angels, family offices, banks, grants and revenue-based financing all fund businesses that do not fit the venture model.

Why do VCs care about revenue in foreign currency?

When a local currency weakens, revenue earned in it is worth less in dollars, which is how most funds measure returns. Revenue in hard currency protects that value.

What makes a market attractive to VCs?

Usually size, growth and the potential for one company to win a large share. Barriers to entry help protect that share once you have it.