How come businesses that have been labelled “investment-ready” rarely receive an investment?
How come businesses complain they perceive access to capital to be a major hurdle, whilst investors complain there is a lack of high-quality deal-flow?
The day before SANKALP in Nairobi various stakeholders came together to discuss these questions. BiD Network is one of the intermediaries seeking to bridge this gap, by working with both (informal) investors and entrepreneurs simultaneously. The gap still remains here, and whilst incubators and accelerators were reflecting on how they themselves could further facilitate the connection to investors, we invited investors to join us for an investor circle to discuss how to improve good quality deal-flow.
Not surprisingly, the two frequently named issues passed the revue:
1) Talent gap – there is a strong focus on “the idea,” and whilst this is important for the potential scalability of the company, initially it is more about the management team’s capacity to execute that determines scalability.
2) Financial records gap – frequently multiple books are being kept. Even when businesses have been going through the deal-making process it has happened more than once that in the final stages the investor finds out there is yet another loan they were unaware of. Investors then are forced to discontinue the deal-making process to either prevent over indebtedness or because trust has been lost.
It should be mentioned that all investors underlined the importance of a holistic approach. Whilst ranking the gaps, they unanimously mentioned the absence of any of their requirements translates into the business not being considered ready for an investment. The absence of trust, transparency, clear markets, and so on were all considered deal breakers. However, the talent gap and the financial records gap were mentioned as the most structural issues to be resolved.
A couple of suggestions for intermediaries to address these issues mentioned above:
– Involve the investor at an early stage during pre-investment business support;
– Tailor the services to truly benefit the business, preferably provided by seasoned entrepreneurs.
Whilst the gaps still remain, we believe initiatives such as the Investor Circle represent opportunities to discuss ways to move this sector forward. To bridge the gap as BiD Network, we continuously bring investors and entrepreneurs closer to each other.