by: Zakaria Saqib Mahmood
All businesses start from an embryonic stage and evolve to become big corporations. Over the recent years the established banking sector have been guilty of suffocating innovation within the SME markets by crippling small enterprises of growth through unnecessary bureaucracy and red-tape. Small businesses are inherently nimble, flexible and operate a business model, which is orientated towards the market.
Having advised numerous SMEs I have noticed how management’s intent on optimising opportunities to market demands, have been curtailed by the lack of available finance. A visit to your local bank equipped with a business plan is often met by a Bank Manager aligned to an institutional lending policy, which is rigorous and rigid. It’s like a small fish confronting a blue whale – not something to look forward to. The major issue one will find when discussing opportunistic projects is a clash in culture. Your bank manager has been provided a checklist and needs to ensure all boxes are ticked whilst SME’s (with their entrepreneurial flair) have a fluid and instinct-driven approach. Unless you are able to align your funding needs to the dreaded checklist, I am afraid the visit to the bank will not be pleasant.
A real alternative is accessing private capital. Business Angels, Venture Capital and Private Equity organisations all provide SME’s viable access to finances under a conducive environment. You will often find sophisticated investors taking a deep insight into your business and ensuring all angles of the business are assessed during due diligence.
When I first accessed private capital, I was shot down by many sophisticated investors who sliced my business model and unearthed gaps in my operations. It took several rounds (or should I say I had to kiss many frogs) in order to get access and finalise terms with the investor but the journey made me stronger. At each disappointment, I managed to gain free advisory as investors (who had many years of experience) provided me constructive feedback as to why they would not be investing and that knowledge was invaluable. It meant I would revisit the drawing board and come back stronger.
To this day, I remain a big supporter of private capital as it allows SME’s to gain human equity as well as private capital. It provides management the ability to sit down and negotiate terms over a defined time horizon allowing terms to be agreed in a manner which accommodates dynamics in market conditions. You will also benefit from human expertise through semi/active investor(s) who has a vested interest in the business. Equally, investors can align terms to the long-term success of the venture and protect their interest. They closely monitor progress which can lead to superior returns.
The Nigerian market can learn from the mistakes committed by more established markets, which in recent years have turned their cheek against SME growth through red tape. Accessing private capital establishes proprietary deal flow for investors. You just need to look at the US and see how companies like Google, Amazon, Facebook and You Tube have benefitted immensely from private capital.
Zakaria Saqib Mahmood is the Chief Executive / Executive Vice President, Sinclair Adamson & Co, a London-based Corporate Finance and Venture Management firm. These views do not necessarily represent the views of Sinclair Adamson & Co, its investors or its shareholders.
The views of contributors are not necessarily the views of Startit or of Sawubona Advisory Services Limited.