Fund Raising

Tips & tricks to raise capital from a successful tech entrepreneur

Published on August 4th, 2021

“Let’s not waste time.” This was the first of a few handy tips fintech startups got recently from Velani Mboweni, co-founder and CEO of LŰLA, a mobility business that focuses on connecting company commuters to private shuttles for sustainable rides.

He spoke to AlphaCode members about how fintechs can help each other reduce the time it takes to raise capital and execute their business plans, based on the mistakes Mboweni made and the lessons he learnt.

Mboweni came up with his idea when he was a student in 2014. “After bootstrapping the business for some time, we did an angel round, where primarily friends and family invested some capital, followed by a pre-seed round, as well as a seed round where we raised funds from the US, Mauritius, Japan, France and South Africa.

Velani explained that there are essentially four fundraising cycles that the startup will face prior to getting to the growth phase of the business that calls for scaling. These are:

  • Bootstrapping: Friends, family and associates give you funding based on your character. This is called love money and is based on someone loving your idea and character.
  • Pre-seed: You are not generating revenue as yet and want to build a prototype to validate your problem-solution fit. At this stage, you will typically part with around 10% - 15% of equity.
  • Seed: Now you are post-revenue, have recurring customers, can deliver on your value proposition and you’re seeing a positive trend for your business. This is when you may decide to pivot your value proposition or offering. The core goal of this stage is to achieve product-market-fit. You may part with anything between 15% - 30% of equity.
  • Series A: You have evidence of product-market fit where your demand outstrips supply. At this stage, the questions are no longer about whether the market exists, but rather how much of the market you can capitalise locally and globally. During your series A capital raise, make sure that you and your co-founders don’t end up with less than 51% of your business. It’s critical not to give up too much equity in your pre-seed and seed rounds of funding.

He also went into detail about the tricks of the trade, lessons learnt around fundraising, some of the key mistakes he made or avoided and how to win as a founder who is fundraising.

  • Tricks of the trade: ensure that whatever market opportunity you present at least matches the size of the fund. Do your due diligence on potential investors to weed out scamsters and try to use convertible notes or simple agreements for future equity (SAFE). Do not waste your time with funds that are not a fit. Always ask for feedback, regardless of the outcome.
  • Mistakes to avoid: giving out too much equity, not doing research on investors and not understanding the model and the logic that underpins it. Be teachable and open to learning, but do not share too much information too fast.
  • How to win in your fundraising: Speak to an investor who aligns to your industry, stage of investment and familiar with how things work in your geography. Start raising funds at least 6 months prior to when you need the capital and be mindful of the capital raising calendar in various regions, avoiding holiday seasons. Be specific about what your investment will help you achieve and over what period of time. Time kills deals and the deal is not done until the money is in the bank account, so make sure you conclude your terms sheets expeditiously. Be specific on where the investment will get you and try and get your term sheets done as soon as possible.
  • Lessons learnt: make potential investors believe this is something they have to do and not something they can pass on.

When one hears Mboweni describe LŰLA, it's evident that he holds to this lesson learnt - "LŰLA is a mobility business tackling a multibillion dollar challenge across Africa to provide reliable transport to people in the continent’s growing cities. By 2025 we will be in over a hundred cities in Africa, with more than a billion people and where climate change is affecting us fundamentally - faster than anywhere else in the world. Without access to transport, you cannot access economic opportunities and you cannot solve poverty, unemployment and inequality.”

Reflecting on the other many fundamental problems that plague South Africa and the continent at large, he believes that there are a lot of new ideas surfacing. “Entrepreneurs have fundamentally new and exciting ideas that need to be funded and given a chance, as they could make an impact in society." Acquiring this funding shouldn't take more time than is necessary and so Mboweni hopes that his shared learnings could help others get through the fundraising process more efficiently.