Top things venture capitalists consider in making investment choices
Most businesses are in dire need of funding for the next stage of growth and venture capitalists have given the top things they look out for when making investment choices.
“We look at the market, we want to know if it’s a growing market and if it can be well served with technology, Omobola Johnson – senior partner, TLcom Capital; former minister of communication technology, Nigeria said in a panel discussion, “navigating an economic recovery amid a pandemic’ at the 12th annual pan-Africa investor conference by Renaissance Capital.
A venture capitalist (VC) is a private equity investor that provides capital to companies exhibiting high growth potential in exchange for an equity stake. This could be funding startup ventures or supporting small companies that wish to expand but do not have access to equities markets.
“We also look at the company; what are the problems they want to solve and how do they want to solve them? What are the business models they are deploying? We also look out for entrepreneurs. Is he or she visionary, how good are they at building a team, how good are they at executing? Do they listen? Are they willing to learn?
Finally, we look at the investment itself. We want to see if it’s an investment that can deliver returns. It is the combination of all these we are looking for. You can have the market and the company but if the investment does not make sense in terms of returns, we might turn it down,” Johnson explained.
Wale Ayeni – acting global head, disruptive technologies and venture capital investments, International Finance Corporation (IFC) also said they try to see if the project and the team all match and take note of the stage of the company.
“We also check to see if we as an organisation can add value to them. We only invest in sectors where we can add value,” Ayeni said.
Ruby Nimkar – principal, GreenHouse Capital, also explained that they look at their referral base.
“We often find that a lot of founders are looking up to other founders in the ecosystem for advice or product testing, so most of them work together and are able to give a good reference,” she said
The venture capitalist also commented on how businesses can survive the heavy regulations in Nigeria and currency risks
Iyinoluwa Aboyeji – general partner, Future Africa explained that regulation is important but sometimes we put too much emphasis on it.
If your business is solving problems and providing value, we try to provide some internal regulations and partner with businesses already in that space. There is a place for putting in regulations that do not stifle regulations but it is important to let innovation lead and your partners handle the regulations.
Wale also pointed out that regulation is not unique to Nigeria or Africa, while we let innovation lead, consumers need to be protected. The problem occurs when innovation is going very quickly.
“One approach we have used is engagement. I don’t think any regulator is trying to stifle innovation. There is a need for more engagement where people discuss what they are doing.
On currencies, businesses have to diversify revenue streams quickly. There are people that have worked hard, grown in local currencies but when converted, it becomes flat,” he said
Omobola further explained that it is not just about engaging but also about collaboration, because when you look at the regulators, it is about consumer protection.
“However, when innovation begins to go faster than they can understand, they come up with policies that do not make sense. It is usually a lack of understanding or awareness and the need to control the pace at which things are growing,” she said.