Start-up funding critical to success

I spent the better part of last week in Uganda, attending an investment conference. As is frequently the case, the conversation ended up in the often touted area of entrepreneurship. I know I have been beating the drums of entrepreneurship for close to two years now.

But as important as the Micro Small and Medium Enterprise (MSME) community is to getting our economy to the next level, I think it is equally important to acknowledge that the odds are still heavily stacked against most entrepreneurs.

Now, writing this article makes me feel like a little bit of a sell out and a lot like I’m decrying everything I have said I believe in so far. But I am nothing if not a fast learner.

And my tune has not changed, not significantly at least. However, the more I think about it, the more I acknowledge that the narrative is highly skewed in favour of the ‘should be’ instead of the ‘as is’ state and anchored on principles that we are trying to import from more matured economies without considering our particular nuances and challenges.

At any one point, the number of entrepreneurs I meet seeking investment in the form of venture capital and private equity is completely out of line with the ability of our market to provide it.

And I do not have the heart to tell them that road is going to be long and arduous. Many businesses never really leave the start-up phase.

The narrative goes thus. Have a great idea, build a proof of concept model around it, go broke trying to get it to market but keep at refining your pitching process as you keep looking for that one investor who is going to put in enough money to allow you to scale.

We have been sold the entrepreneurial dream for so long that we do not stop to interrogate our reality any more. There is a reason why businesses in matured economies where there is a significant amount of investment and financing available become successful much faster than not so developed economies. Start-up funding gives founders the leeway to pivot and iterate to the point that they have a product (or service) market fit.

Funding ensures that the company can hire the best talent and cover overheads for as long as it takes to break even and become sustainable.

Investors in these markets also understand that the success rate of their investments can be as low as 10 per cent, therefore making their appetite for risk much higher and allowing, even demanding for diversification.

However, the 10 per cent that succeed more than make up for the other businesses that don’t.
Can you name 5 investors in Kenya who are willing to invest in a business where their Return on Investment is not guaranteed to a hundred per cent?

And yet, from GES to the numerous other entrepreneur-focused events since then, it seems like all we have to do is attract enough of the right kind of attention and we are home and dry.

Now, I’m not saying that we are all doomed. In fact, there are certain sectors which have a higher chance of attracting funding given the special initiatives created around social enterprise funds.

Innovating around our basic needs – education, health services and energy etc – is likely to get you a foot in the door. Then there’s the survivorship bias.

There’s a consensus among the business moguls, at least the honest ones who don’t attempt to oversimplify the gruelling and challenging nature of building an enterprise from the ground up. It is echoed by Author David McRaney who contends that advice business is a monopoly ran by survivors.

Where non-survivor exists, it is either eliminated or the voice behind it muted to zero. True to form, I have never come across any entrepreneur who publicly admits to failing at all of his or her pursuits.

Most admit to failing and failing until they finally succeeded, usually in the venture they are involved in at the moment.

The survivorship bias concept alludes to the fact that successful businesses may not really know what made them successful in the first place. That coming out on top was a combination of luck and timing, and not always the ever touted incisive strategy and bold leadership.

I am sure we can cite business phenomena that have taken certain sectors by storm due to their innovativeness, where if the leadership were to be honest, they did not initially expect to garner the kind of success they did.

In fact, many products have the good fortune of coinciding with a time when customer frustration with the existing solutions is at all-time high.

In as much as I have learnt a lot in this journey, I have a feeling that my learning is still at its infancy and it will get tougher before it gets easier.

As gloomy as it may sound, I have come to accept that in this space, everything takes twice as long and is twice as hard as we anticipate.