Finance and Funding
FACTORS TO CONSIDER
The public and private sector in the Sultanate of Oman has created an ecosystem with initiatives to promote the development of Small & Medium Sized Enterprises (SMEs) and Startups. This module focuses on the funding options available to you, from venture capital to crowdfunding and everything in between.
As a startup founder, securing funding is one of your most important objectives. This section details all the ideas that could factor into funding a startup.
One of the most significant factors for investors is to have a strong foundation team. As the founder, the investors will want to see your skills and experience working in the relevant sector. If you have additional team members, they will want to see their passion for your project.
Investors will also want to understand your capability to raise funding by yourself – whether it’s staking your own money, raising money from friends and family or generating revenue by selling your product from the beginning.
At the incubation stage, investors look for traction; whether you have a marketable product or service. A great way to prove traction is with a proof of concept or pilots.
In module one, the development of an MVP was discussed with recommendations on how to create one. A good MVP allows you to begin engaging potential customers and demonstrating that you have a product that is on its way to product market fit. Generating sales or running pilots are typically good indicators for early-stage investors.
Having a market ready to purchase your product is another essential aspect to become investment-ready. Likewise, investors look for markets that are either already large or are growing rapidly.
Once you have identified your market, you will need to think about whether it is suitable for investors – is your product market limited to the 25 miles radius of your head office? Then you have a limited market and might not be what venture capital investors look for. Is your mobile application idea going to benefit customers from across the country in any area? You are likely to have a larger market size and may be of more interest to investors. Not every product or service needs to have an international market, a niche market is acceptable as long as you have customers that generate recurring revenue and growth.
In module one we covered identifying your Unique Selling Point (USP). Having a key differentiator is important for investors. What exactly is your unique feature? Do you have a first-mover advantage in the market? Are you going into a completely saturated market, but your product will break boundaries?
Here’s an example – Tamara: A buy-now-pay-later app established in the MENA region raised USD 110 million allowing 100s of e-commerce site customers to split their payments. Although the company went into a saturated fintech market, they captured investors’ attention with the potential of their unique selling proposition – allowing buyers to pay in instalments. Unlike typical banks, which take a lengthy process to approve a small loan, Tamara makes it easier for customers to check in minutes.
This is a crucial aspect for investors as they need to understand how long will it take for them to receive a return on their investment. Typically, the analysis will include the following:
- Your quantitative analysis behind your model
- Any qualitative research such as research backed by potential customers
- Set of financial documents – income statement, balance sheet, cash flow
- Return on Investment (ROI) analysis using capital budget techniques
- Your existing cash sources and other financial metrics that you may have
A potential revenue model should be generated on a monthly and yearly basis. You can include the monthly breakdown for the first and second year, and for the following year, you can focus on the annual return. By conducting a thorough income analysis, you will have an overall idea of how much money you will make from your services, what you will need to change to grow your business, how many customers you will need over time to increase your revenue and the potential cash investment required at different stages. Investors always appreciate monthly detail; therefore, it is always better to prepare these documents. There are lots of templates available online. You can also use Smartsheet, a software that will help you to make projections.
Credibility and intellectual property
Credibility and intelletctual property (IP) add value to your business. A patent can add significant credibility and value to your company. IP is one of the most significant factors in early-stage investing because it provides investors with confidence that others will not be able to replicate your USP.
Likewise, having a strong advisory committee demonstrates to investors that you know where to go for the right advice and assistance. To find advisors, look for people who are experienced in specific industries relevant to your product, such as experience in banking, fintech, project management, a scientist, or someone who already sits on the advisory board for another startup experienced in raising funding. The right advisor can signal significant credibility to investors.
After you have identified investors, it is good to keep looking for connections in the industry. You can use cold approach tactics such as reaching out to investors via their websites or email. You can also try reaching out to communities specialising in startups. Business Startup Oman, Startup Grind and Oman Startup Hub curate events targeted toward startups and SMEs in the country.
It is important to remember that investors receive many unsolicited investment pitches every day and your email may get lost in the pile. A direct referral typically increases the chances that the investor reviews your pitch.
Once you have connected with the investors, you should be prepared to talk. Have an investor elevator pitch and practice to make it perfect. Spending time creating a strong 30-second overview is worth the effort.
You’ll need to have the passion and interest to reach out to communities through networking events. Meet with people and exchange phone numbers. When joining gatherings and events, always have your business card or digital way to connect. Make an investor-ready landing page and provide the link to them. It will give them a small introductory brief that could lead to more considerable outcomes.