In the article, “A startup investing template for the Cameroonian tech ecosystem” my focus was to set out the steps in developing a startup and using it as a guide in investment and financing. With the template, we can now move onto the next stage, which is building a fund management system that works for both the startups and investors.
Over the course of trying to build technology startups, I’ve had exchanges with a good number of investors. From those exchanges, I’ve, however, come to understand their biggest fears and the challenges they have in pushing through their desire of investing into Silicon Mountain.
In as much as most of them are interested in assisting in developing Silicon Mountain, they’re very interested in the returns and risks associated with any investment. As such, they bother about due diligence (pre-investment), monitoring and reporting (investment) and liquidity and exit (post-investment).
Due diligence has been the biggest stumbling block for most investments in Silicon Mountain. General statistics about the economy of Cameroon are hard to find. If you find some, they’re most certainly not up to date. Information about specific markets isn’t readily available either. Given that it’s hard to get comparative and general information, it, therefore, becomes hard to make informed decisions about the specific market of a startup’s product.
At a much more fundamental level, is the lack of information relating to a startup’s intellectual property, operations and finances. When information is hard to come by, it is impossible for anyone to make any kind of informed decision.
Any Fund Manager that intends to channel the flow of investments into startups in Silicon Mountain, therefore, needs to find a way to bridge this general, market and specific information gap. It has to be a system that makes the information available at a price that won’t scare the investors and startups alike.
Monitoring and Reporting
While Due Diligence is about information to make the decision to invest in a given startup, Monitoring and Reporting is, however, about information on the evolution of the startup. Maintaining a standard accounting system following the OHADA Accounting Plan isn’t for the chickenhearted. It is an exercise that requires the services of at least, a consulting accountant.
And accounting information isn’t the only information the investor will need. Investors will need information on the progress of product development, market traction and a host of others. Capturing, analyzing and reporting all the relevant information is an expensive process for a startup. It is laborious, expensive and most often given that there are other pressing matters on product and market that must be addressed, it is most often ignored.
The lack of periodic information on the state of affairs of a startup with respect to its product development, market traction, operations and finances, gives room for doubt and mistrust in an investor. In the end, making it hard for the investor and startup team to continue the partnership on a platform of respect and accountability.
The Fund Manager must provide a system that will be able to capture, analyze and report the required information from startups without the associated costs and efforts.
Liquidity and Exit options in a fund management system
Last but not the least is Liquidity and Exit options. Investing in startups implies capital will be locked for at least 5 years. That’s a time period that most of the kind of investors who are willing to invest in the startups now can’t afford. As such, they have always been searching and requesting for alternative liquidity options. Very few individuals are willing to commit funds at that risk for 3 years or more. The absence of liquidity options, therefore, scares most would-be investors from investing in startups.
Also, the lack of a dynamic capital market makes traditional exits for startups like M&A and IPO impractical. Thus, there’s really no exit in sight.
Without liquidity and exit, investing becomes a matter of life and death. A working Fund Management System will have to develop a solution that squarely addresses this challenge.
Coming soon… Genie
It’s not enough to identify the challenges and simply propose solutions. We are taking a step to create the solution. We call our solution, Genie.
Genie is a fund management system that aims to provide an integrated solution to both startups and investors. We’ll be solving the three main challenges identified above (and more we’ll identify in the future) for investors. We’ll do this while providing very much needed support to the startups in our portfolio. Our focus is on product startups in Silicon Mountain.
Are you interested in investing in Silicon Mountain? Let’s talk.
Are you a product-focused startup in Silicon Mountain? Let’s talk.[gtranslate]