To Venture or not to. . .
Venture backed businesses and their valuations
Seems every where you look, the US ecosystem, UK ecosystem, India, Nigeria and South Africa, there is increased movement in the venture space.
Awesome new ventures are being created, and interesating new niche markets discovered for age-old services.
This is a golden time, for entrepreneurship, innovation, creativity and venturing.
As our reputation gains greater momentum, we are able to secure really good dealflow — from diverse entrepreneurs, across the African continent, gaining access to opportunities within numrous verticals and dynamic start-up businesses.
The teams are great, the opportunity or addressable market massive, and the execution plan looking feasible.
Everything just shinny with tangible traction in the market, and the opportunity to grow significantly and offer great value.
Then we speak valuation. . .
As a previous operator, I fully understand the grind, sweat and capital required to get a business started, the sacrifices and the loneliness to start and grow a product offering, brand or service.
Valuation and a good one at that, allows you to recoup all that investment.
Of late, we have seen some shocking valuations — busiensses that cannot justify what they are aksing for and the amount of equity they are willing to offset for that required investment.
I will get back to this point and the reasons I think we have an increase of this outlandish valuations.
Let set the scene through antithesis, we have come across two opportunities this month, companies that need venture backing, have been running for 3 to 8 years, I know what you are thinking, but bear with me.
These start ups are generating evenue, have a clear and proven product-market fit, yet their valuations are fair, sober and the entrepreneurs are able to articulate the valuation.
This could be the difference between first time entrepreneurs VS seasoned veterans or it could be the globalisation of things, where companies conduct valuations based on industry averages, based on markets that are not in any way similar or have the same spending capacity.
Other ecosystems seem to have a greater tollerance for ambiguity, where the company is valued highly but making losses at an alarming rate, our conservative South Afrian outlook is fair value for great potential — we are venturing not conjuring, we are proffessionals not magicians.
We take leaps of faith based on rational thinking, on the ingredients present in each company that could yield success, and servicing a market able to purchase consistently and gain product-market fit over the medium term.
I think all partners in the transaction need to keep in mind that we are in a partnership, that the ultimate goal is to grow this asset we have partnered in, so we all can realise capital gains and returns on the capital deployed, be it sweat capital or financial capital.
