In 2016, I decided to start an events and adventure business. I even went further and organized three adventure tours in a space of three years. As much as it was a promising venture, one based on a personal interest in travel, I did a shoddy job at it. It is worth noting in this article that I was an undergraduate student at TUK and to transform my dream into a reality, I needed three things.
A start-up business is like a new born in that it requires undivided attention. For it to pick up, I needed to drop out of school and use the hours in research, networking, marketing and sales but dropping out was a non-starter.
In the information I shared above, I lacked the mental stealth to dream big and go through survival phase of starting up. I have been listening to Vusi Thembekwayo Ted Talk and he singles out four imperative requirements of an African Start up and mentorship makes the list.
Many contemporary business speakers will say that capital is the least important requirement of a business. I partly agree with them, especially for small businesses where the founder does every other operation and intends to keep his venture small. This forms the basis of my argument today. Please do not continue if you want to start a road side business where you do every other operation. This piece is for disruptors, people made of steel. People who want to revolutionize existing pan-African business sectors like banking, manufacturing, health, agriculture and service delivery.
What is a Venture Capital?
A venture capital is defined on Wikipedia as a form of financing provided by firms or funds to small, early-stage and emerging firms that are deemed to have high growth potential in terms of employees and annual revenue. They do this in exchange of an ownership stake in the companies they invest in. A venture capitalist, the owner of a venture capital, unlike a bank is a philosopher who believes in common good. A banker gives a loan with a solitary aim in mind only, the interest. How good is a man who gives you fish at the expense of teaching you how to fish? A capitalist has an equal responsibility in making the business work as the owner. Who do you choose?
How banks make their money.
Banks and Saccos aim at total control and maximum profits. Here is their trick. You aspire to join the transport industry and have raised Kshs. 800000 which is 8000 USD. A brand new 15 seater van goes for about 4 Million Kenya Shillings at Toyota Kenya while a used Ex-Japan van goes for about Kshs. 2.6M. With bank financing, you will get the van but surrender the log book to them until you complete payment in a sixty months instalment plan. The log book plus your Kshs. 800000! If not the log book, they will need a collateral in form of a title deed, pay slip or a large number of shares. For the next five years, you will toil and moil for the bank. Each penny above operations cost goes to the bank, in short you provide them with a flawless monthly income.
Let’s assume that at the end of five years you haven’t completed the payment. They can either repossess the bus, auction your shares or property you listed as collateral. If the bank wants to twist the sword they drove in your chest, they can extend the period with 24 Months on agreement that you increase the interest rate by a fold. In the end that leaves you in shambles, worse than you began. With a worn out spirit and opportunistic ill thoughts like suicide creep in. I do not dislodge bank and sacco loans as sources of capital, we have success stories from them too. Visit their websites and see it.
Why venture capital is the better option.
Venture Capitalists, are philosophers and philanthropists who want to make the world a better place. They are Ubuntu Philosophy advocates. Most are self-made and have gone the long way. They have tussled bank loans and have invested money and time into what they do. Here is their take; you have a brilliant idea. They challenge you to scale it up virtually. How can your fresh vegetable business become the next big idea from Africa. They invoke you to think global, in line with emerging trends in technology. You think of cold chains and home delivery models. That is when they come in, they are the money bosses. They can invest up to seventy percent, leaving thirty percent for you. A venture capitalist has business networks and state of the art operation sytems. This will infiltrate your business and you become a subject of dicussion. Your small Mpesa idea is amplified by Safaricom to become an international icon. A venture capitalist will also mentor you as a novice start-up and equip you with skills to survive leave alone to become successful.
I am not trying to sanctify all venture capitalists because in a group of angels we have Lucifer. Let me say that there are also rogue capitalists who want to imbibe on your idea and you will not get the benefits. I will need another 800 words for that so let’s meet here next week for a deeper conversation. I will share tips on dealing with these investors, how to maintain a healthy share of benefits and how to be a symbiotic contributor to the relationship. Next time you want to start a business dream big, start small and operate wisely otherwise self-employment will be as taxing as employment.