Funding for early-stage start-ups is notoriously hard to find as not many financiers are prepared to invest, given the inherent high risks involved in backing a business with no proven track record.
This, coupled with statistics revealing that one in five start-ups fail within the first five years, makes it even more of a challenge for a first-time entrepreneur to convince a financier to approve funding.
Christo Botes, executive director at Business Partners Limited (BPL), said while a concise business plan was often the deciding factor for a financier when approving business finance applications, more established entrepreneurs have the added benefit of industry and work experience that a start-up entrepreneur might not possess.
“When considering whether or not to grant funding for their start-up venture, this decision is often based solely on the business plan and the research put into this, thereby highlighting the importance of this document.”
He pointed to start-up entrepreneurs Chelsea Evans and Jason Newmark as proof of how the strength of a business plan and concept can impact a financier’s decision of whether to grant funding.
“Recent participants in the venture-capital television show, Shark Tank SA, the duo have managed to raise R400 000 (USD1=R13.43) based purely on the business plan for their internet start-up business.
PlanMyWedding.com – a complete project-management tool that allows couples to get quotes from service providers – draw up a budget and manage an interactive gift registry, among many other functions involved in planning a wedding – which is still in the development stage.
During the episode, which recently aired on M-Net (DStv), the start-up entrepreneurs pitched their business concept and succeeded in convincing two of the ‘sharks’ to invest R200 000 each, in return for 25% each in the business.”
Newmark said while it might seem a stroke of luck, their success on Shark Tank SA was testament to the strength of their business concept which is based on many years of hard work and research, as well as actively networking and seeking business support.
Apart from securing funding – which is being used for the continuous refinement of their website – Newmark said another invaluable advantage of having outside investors was the new energy and momentum that has been injected into the venture.
Botes said while many financiers were cautious to fund start-ups, a well-researched business concept, backed by a solid business plan is crucial for minimising doubt in the eyes of potential investors.
“An investor needs to be reassured that the entrepreneur behind the start-up concept has the necessary skills and resources to take a specific business idea and turn it into a successful start-up business that has the potential for growth.
“We encourage all entrepreneurs who are considering starting a new business to use the resources at their disposable. For instance, the SME Toolkit website (http://southafrica.smetoolkit.org/sa/en) has various comprehensive guides on how to start and build a successful business,” Botes concluded.