I am regularly asked to speak at networking / business events and its always interesting to hear the direction that questions take. At the moment, it is all about crypto-currencies and start-up capital.
My view on “cryptos” is very straight-forward – if you can’t buy bread or beer with it (and without the price deviating massively between transactions) then I’m not sure that it is a “currency” or an “investment”. Buying something “because it’s going up” is also not sound investment logic.
To highlight this point, I had a recent discussion with a finance student who told me that I was wrong around crypto-currencies and he can prove it, because:
– He has generated a 1500%+ return off his crypto “investment” in 3 months
– He attributes these gains to his ability to “trade faster than professionals in places like banks who mainly look at things like forex which moves slower”
Up until then, the conversation was riddled with inconsistencies but the next part really blew my mind: “My brother and I are looking to buy an income generating property (with existing tenants) and it is up for auction this weekend. We don’t qualify for financing for the property but we are hoping to find an investor who will put in R1m and we can then pay them back over 10 years with some debt funding agreement…can you help?”
Are you honestly saying that 2 employed and degreed professionals can’t secure a R1m bond on an income generating property, especially having just knocked up 1500% returns on crypto trading?
Don’t get me wrong: Trading is a lot of fun and I have a couple of very good partners who spend a lot of time working with their clients to help them grow and preserve their wealth through managed trading activities… but if you can’t actually lock in your profits and be able to buy income producing assets, then I’m not sure that you are on the right path.
The new year brings in new ideas and enthusiasm and I’ve been inundated with a number of requests around start-up capital, venture capital and angel investing in new projects.
“Don’t you have R2m for my start-up?” seems to be a common question at the moment.
Here is a brutal cheat-sheet for those asking this question:
1. Will any of the 3Fs (Fools, Friends, Family) lend to you? If “no” then other lenders won’t either
2. “I have an idea for an app, I have no tech skills but if I can raise capital for a developer plus a salary for myself then it will revolutionise the world” – your chances of funding are next to zero unless you have the tech skills to build a product
3. If your idea doesn’t have a user base and revenue (profits are preferable), lenders are not going to lend you money.
4. If you are looking for a R2m loan, the best test for your logic: Will a bank / lender give you R2m to go and buy a Porsche today? If the answer is no because you don’t have the ability to repay the loan, the same will apply to getting funding for your business idea.
There are ways to get start-ups funded in South Africa and we have a team who are more than happy to build you a road-map to funding but you need to manage your expectations.
The simple rule will always be: “Capital follows yield” – keep this front of mind and you’ll be able to tackle the capital raising process with more confidence.
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