FUNDING – By Martin Potgieter (IDC)

Insights on getting finance from financial institutions

 

Pointe aux Piments, April 23 (BSHD NGO) – Martin Potgieter, Senior Deal Maker in the Light Manufacturing and Tourism Unit of the Industrial Development Cooperation (IDC) is ever willing to share winning insights on getting funding from variable potential sources of funding.

Speaking to BSHD NGO at the sidelines of the Southern Africa Youth in Tourism Conference recently held at Pointe aux Piments in Mauritius. An event organised by the SADC tourism arm, the Regional Tourism Organisation of Southern Africa (RETOSA), Potgieter was quick to highlight that friends and family are the most widely used source of funding within smaller enterprises, and often the starting point for most entrepreneurs.

“In general, potential sources of funding available to entrepreneurs could include crowd funding, which is an innovative, relatively new source of funding, enabled by global interconnectivity and online payment platforms by individuals of all walks of life,” said Potgieter.

Other sources he touched on include:

Angel Investors, these he said are wealthy individuals who are willing to provide seed or early-stage funding to enterprises. He said they can be motivated by philanthropic motives or by investment returns.

Venture Capital & Private Equity Investors, he said these are more professionalized investors into enterprises, seeking high investment returns.

On Government-initiatives and Development Agencies, Potgieter said they are largely grant or concessionary funding. Inexpensive, but often laborious and may be local or international.

Development Finance Institutions (DFIs), he said are institutional sources of debt and equity funding, at commercial and/or concessionary rates, with a developmental mandate.

Forgetting Commercial Banks would have been a crime, as these are the largest institutional sources of mostly debt funding, on commercial terms.

Speaking about his own organization, Martin Potgieter said, “Our purpose is to assist the tourism industry private sector to grow sustainably by creating additional capacity, maintain capacity and enhance product offerings to domestic and foreign tourists – both in South Africa and the rest of the African continent.”

He further elucidated that they work in partnership with entrepreneurs, the government – national and regional – and other financiers to ultimately fund bankable business plans that require substantial capital outlay, in other words, accommodation stock and niche tourism.

“We provide funding to economically viable, sustainable businesses.  We invest primarily in the accommodation sub-sector, with a particular focus on business hotels in fast growing nodes in Africa. Other sectors or three core industries we fund are agri-processing, the minerals and mining industry as well the as mechanical and manufacturing industries,” he said. Adding that outside of that and on a more reactive basis they fund ICT, health care, forestry pharmaceuticals and the media – movies, including others in their extensive list.

On a general note, regardless of which funding institution one seeks funding from, Potgieter said what’s of primary importance when seeking funding is the quality and the completeness of one’s business plan. Hence he said what’s really important to focus on is to make sure one is being as comprehensive and compelling in the business case that one is putting forward, making it bankable.

“You also need to understand development funding institutions you are speaking to. Know their funding mandate and criteria which usually differs from institution to institution,” he advised.

One other factor he said funders consider is the management expertise or skill of applicants.

“For a hotel development just to cite an example it would be important to make sure you have land and it’s licensing and approvals and that you understand well enough how much the development is going to cost. Then you need to consider the marketing side of it as it is very important and helps you determine the competitive environment that you are going to operate in and the competitive positioning within that environment and how you are going to leverage or sale your product so to speak,” he said, adding that funders also need to know the strength of the management team and how it is going to pull it off.

Speaking on the constrains in financing a youth in tourism venture or any other venture for that matter Martin Potgieter said commercial banks hesitate to fund ventures because of the perceived risks, especially if its leisure oriented tourism. Therefore, he said in the region banks are not as keen to fund tourism development.

“Another challenge is that if you are a young person and haven’t had the luxury of being in the industry for ten or twenty years’ worth of experience it can be a problem. Same thing applies to not having an established capital base from an equity perspective to be able to put money into the business, that becomes another key challenge that young people face, a constraint that hinders potential funders from funding” said Potgieter.

Common mistakes or key stumbling points in business plans submitted which fail getting funding, he said are land tenure issues, strength of management team, unclear understanding of budget, poor marketing strategy among others. To get funding, Martin Potgieter advised that funding seekers will need patience, perseverance and persistence. Moreover if a business gets the funding but fail in the business, after trying and failing to keep a business afloat or resuscitate the business, they will take the applicant’s shares in the business and endline asserts, so they recover their debt funding. Enditem