Capital Raising — Who invests in businesses anyway?

“Buy land, they are not making it anymore.” — Mark Twain

Buying land is arguably the most popularly recognized form of investment in Kenya. It has somewhat been a respectable way to invest however, this form of investment has over the years been overcrowded. There currently exists many players in the market and land prices are not reflective of the true value of the asset, somewhat signaling a bubble. Kenyans have hailed other investment channels such as the Quail rearing, Avocado planting, Bitcoin trading but all these were fads that almost instantly failed as soon as the market corrected itself. This country is in dire need of proper investment channels that are tried, tested and yield both short-term and long-term benefits.

So, why not invest in SMEs?

A relatively new concept to our economy is capital raising for local businesses. Capital is technically described as the money available for investing; it comes in the form of either debt or equity. It is solely for the purpose of financing business operations and can be put into a commercial activity.

Small and Medium Enterprises of good repute, with a healthy appetite for growth are open to the concept of raising capital in order to sustain their operations and grow their businesses. Visionary entrepreneurs who have a purpose, focus, drive and who know their business, lead the pack and grow through all odds. Often, they build, turn a little profit, and reinvest it. This organic growth works up to a certain point. Consider those many unstructured requests where entrepreneurs engage the “FFF” (Friends, Family and Fools) in order to raise capital at different times (often infant stages) on their business’ journey.

A structured approach involves seeking investors who either furnish loans or purchase a stake in the business. In our previous article on capital raising we highlighted how Kenyan firms have attracted investors.

You have all watched those investment pitching shows; KCB Lion’s Den, Blaze Be Your Own Boss, Shark Tank where it’s always “a ‘NO’ from one investor” or “a ‘YES’ from another” — after an animated negotiation on the value of a business in order to drive a good; bargain. Question is, what does it really take to be ready to negotiate for investment? What does it take to attract investors? As the adage goes it is all a matter of preparation, in order to grab the interest of prospecting investors.

Investors are typically interested in three things: To turn their money into more money, to impact the society and people for general good, and to have a positive impact on the environment. Most times, the anchor reason is the first one on this list.

For SMEs it is important not to underestimate the importance of the preparation process involved in raising funds for their companies. Valuation, business strategy, business structure, tax concerns and of course how to negotiate from a vantage point are key to the capital raising process.

This week, ISBI will run a two-day Capital Raising Seminar at Strathmore Business School. If you dare to break from the mold, be a little defiant to offer something other than ‘land’, find out more below.