WATCH | Applying for funding? Avoid big mistakes most entrepreneurs make

An entrepreneur and an expert share practical advice on how to secure investors in an episode of Old Mutual’s free web series, Nine Yards TV

It’s important not to overvalue your business. Nobesuthu Ndlovu, Old Mutual Corporate director: SME, says entrepreneurs should be realistic and scale back their initial ambitions when applying for funding.
It’s important not to overvalue your business. Nobesuthu Ndlovu, Old Mutual Corporate director: SME, says entrepreneurs should be realistic and scale back their initial ambitions when applying for funding.
Image: 123RF/andreypopov

The three biggest mistakes most micro, small, and medium enterprise (SMME) owners make when applying for funding is overvaluing their businesses, not having a grip on the company’s finances, and failing to appreciate the needs of a potential funder, says Nobesuthu Ndlovu, Old Mutual Corporate director: SME and small business owner.

She says it is widely accepted that one of the biggest challenges for entrepreneurs worldwide is access to finance, which is why the inaugural episode of Old Mutual’s informative web series, Nine Yards TV, deals with this exact subject. 

Old Mutual launched the series to support its Nine Yards magazine and provide real-world advice for entrepreneurs, bringing small business owners and various experts together to unpack vital topics pragmatically during nine-minute episodes. 

The first episode — watch it below — profiles Zamokuhle Thwala, who cofounded agricultural start-up AgriKool to connect emerging black farmers with finance opportunities. While Thwala understood agriculture and the problem at hand, he says he rushed into making funding decisions without properly understanding their implications. 

Thwala says he did not have a deep understanding of the fundraising challenges inherent in the high-risk industry, such as the costs to service debt. As a result, he says, AgriKool lost a lot of money in the early days. 

“At the outset we probably knew more about the agricultural side of the business and not the finance: a big learning curve for us,” he says. 

WATCH | Zamokuhle Thwala, award-winning founder of AgriKool, and Tafadzwa Madavo, CEO of Riversands Incubation Hub, share advice on how to secure financing for your business.

Ndlovu says it’s vital for entrepreneurs to upskill themselves and make the time and effort to understand the numbers in their business; everything put forward to investors should be linked to these numbers.

 “Of course, an entrepreneur will hire someone to take care of the accounting, but they should still have a solid grip on the numbers — things such as margins, projections, running costs and interest. 

“A funder will be able to ascertain this quickly, and if they’re going to invest in someone, they must have faith in where their money is going.”

Ndlovu says this leads to the next mistake — not appreciating who the funders are and why they make the stipulations that they do. “This simple step of appreciating the position and needs of the funder, and how your business will add value to them, will go a long way to reducing blanket denials for finance.”

Thwala agrees, saying that in the early days of his business he chased funders with no joy. “We fell into the trap of chasing investors and finding doors that were closed. Generally, we were in a hurry and getting into debt traps.”

His advice: “Create value first, and then the investors will seek you out,” he says.

Five tips to get ahead when raising funds

1. Start small when applying for financing
2. Understand the business numbers
3. Put yourself in the funder’s shoes
4. Be realistic with your business valuation
5. Learn from the declined applications

Ndlovu says entrepreneurs should be more realistic and scale back their initial funding ambitions as they demonstrate their business value.

“Rather start smaller. We have spoken to a variety of funders and incubators, and they all agree that starting smaller and building a relationship while demonstrating value is far more likely to result in a ‘yes’.”

Ndlovu says those small business owners who are having difficulty raising funds would benefit from watching the first episode of the Nine Yards TV series. “As a result of discussing AgriKool’s challenges and successes, it provides real-life tips to unlock funding.”

Click here to watch additional episodes of Nine Yards TV.

Entrepreneurs can subscribe to Nine Yards magazine to tap into realistic advice, ideas and tips they can apply to their own small businesses. 

This article was paid for by Old Mutual Corporate.