Darshan Chandaria is the Group CEO of the Chandaria Group, which operates in six countries across four continents.
The group includes Chandaria Industries, which is the largest tissue and hygiene products manufacturer in East and Central Africa.
The business is also involved in insurance, banking, gold mining and solar energy generation, employing more than 3,000 people.
Its latest addition to the group is Chandaria Capital, a venture capital fund that invests in promising entrepreneurs who’ll build the next generation of large, local, regional and multi-national businesses.
Darshan is also an investor on KCB Lions’ Den, a reality TV show that airs on KTN and gives budding entrepreneurs a chance to pitch to some of the country’s top business leaders for investment.
Hustle recently caught up with Darshan and heard from the lion’s mouth what it takes to get someone to inject cash into your business.
1. Know the basics of what investors want
This is what we investors look for – you must at least have a registered company, you must have taken your product and service to the market, there must be some revenue, there must evidence of the product showing some sales and some demand.
You also need to have proper documentation. You need to have a shareholders’ agreement, a certificate of incorporation and a memorandum or articles of association.
And then make us understand what it is that you want the money for.
Often, people will say: “The idea is great, I know it can work, but I don’t have the money to actually even register the company.”
That’s very risky. The idea is in your mind, but the fact that you have not even put in any of your own money, time and effort to actually register the company and take the product or service to the market may hurt your chances. Investors want to see the effort you’ve made.
2. Be realistic with your valuation
At first, many entrepreneurs used to come into KCB Lions’ Den and ask for, say, Sh5 million for 30 per cent of their business.
But then when you ask them how they arrived at that valuation, they would say, ‘I need Sh5 million and I only want to give away 33 per cent of my business’.
That’s not how it works. An investor will fund your business based on what it’s worth, so make sure you calculate and arrive at the valuation you table in a realistic manner.
This requires that you know your business well. Understand your numbers historically – what you have been able to do, the sales, the expenses and so forth.
Be realistic about your growth. You cannot say you had Sh1 million in sales last year but this year you’ll get to Sh10 million. The alarm bells will be ringing because 10-times growth is very hard, even for a very successful business.
3. Know the ins and outs of your business
It can be pretty nerve-racking when you’re in front of millions of people on TV, but that’s what you want to see in an entrepreneur – if they can perform under pressure.
There are entrepreneurs who’ll give you clear answers because they know their business inside and out.
Know your numbers. If we ask you about your 2018 numbers and you say, ‘In 2018, it was Sh5 million – no, actually it was four, I did not factor this and that in, I have not collected this’ – you end up with all sorts of challenges. Have a clear, refined business plan.
Know and understand your competition. Especially with tech-enabled businesses, people don’t see the big players out in the market like Safaricom, but they will insist that they can compete and already have a product, but have not really factored in the effect the competition will have.
Put in all the costs, such as the cost of hiring people. Sometimes when we look at the business, we realise the entrepreneur won’t be able to run the business with the two people they have, and they need to hire, so their costs are not relevant.
4. Be 100 per cent honest
Remember, it’s not just about what you tell us. We’re going to do our due diligence thereafter as well.
We are going to quickly find out if you were not telling the truth about something, or if something doesn’t add up. What you tell us and what your numbers and documents show have to line up.
Sometimes you will say you have a patent pending, but even if you have already applied to the Kenya Industrial Property Institute (KIPI), until you get the certificate of registration, it’s not a registered brand.
Also, don’t mix your personal and business life. You can’t run an M-Pesa account for daily expenses in your personal life and then run that for your business as well. It’s going to be very confusing for investors.
5. Know what kind of entrepreneur you are
In an entrepreneur, I look for innovation, commitment and someone who’s done their market research.
About 50 to 60 per cent of my decision is based on whether I can back the entrepreneur with a team. Are they innovative? Are they committed?
Often, people say you have to have a clear vision, but due to my own experience, I’m the opposite. Where I see the business a year from now will change in six months.
So having a clear vision is not important to me.
Knowing the market and the competitive landscape, having done some research is very important. Knowing the industry you’re going into, knowing the competition, knowing what works and doesn’t – that market research is very important.
6. Focus on one thing
You should be able to explain what your product or service does clearly.
For instance, some entrepreneurs say their business can do five things. You cannot be a manufacturer of tissue, sugar, flour and salt all at the same time. You have to focus on one business line.
Chandaria Industries is very focused on tissue paper and hygiene products. Chandaria Capital is very focused on investing in entrepreneurs and SMEs. So the business has to be very clear.
We have to see that, to start with, you’re very focused on a specific product or service or a specific demand or requirement and be able to explain it.
7. Have clarity on your unique selling point
Have the ability to show the investor how your product is different.
If you come in to say that you’re going to make a product that I already make, be aware that I know the industry well. What is unique about yours?
For instance, we invested in Crystal Rivers, which did liquid soaps and hand washes. What I liked about it was the entrepreneur’s drive, enthusiasm and ability to show that ‘Yes, you’re the biggest players in that space, but I already have market share, I have customers already buying from me, I have different products from what you have, different price points, a different model as to how I sell and I have a plan to develop more products’.
In addition, consider the investor’s alignment with you. One may offer you more money for less shareholding, but another one has a lot more to offer in terms of the network, resources and connections that they have, which will be more helpful to your business in the long run.