According to UNCTAD 2019 World Investment Report, Ghana has cemented its position as an attractive destination for Foreign Direct Investment (FDI), ahead of neighboring Nigeria, by attracting FDI commitments to the tune of about US$ 3 billion in 2018. Capital is increasingly becoming available in the sub-region, as growth opportunities abound for companies delivering high impact and returns. However, most entrepreneurs struggle to obtain patient impact capital. This constraint is even higher for the youth, women, or those who reside outside the capital cities.
Ghana presents opportunities for investment in businesses that are scalable, delivering impact and financial returns. Yet, there is a mismatch between information impact investors expect to obtain about small and growing businesses (SGBs) during initial engagements and how the SGBs are presented by promoters (the Entrepreneurs). One of the key challenges for start-ups and SGBs is to find the right balance between the what and the how of pitching a business to an impact investor; “what” the impact investor is thinking during initial engagements and “how” to tailor the pitch so as to capture that “aha” moment of the investor.
Entrepreneurs often ask: how different is it to pitch to an impact investor? In reality, it is quite similar to pitching to a traditional venture capital or private equity investor. The impact pitch deck, like the traditional investor pitch deck, should ideally cover information on the problem identified, solution or business proposition, the market, the business model, competition, strategy, team and traction/impact milestones and fundraising information. The main distinction, however, is that impact investors assess financial returns along with environmental and social returns, with the rigor of analysis being similar to what traditional investment analysts will do.
Image Source: Aria Capital Inc
The Problem Identified:
This presents the entrepreneur the opportunity to present on the problem they seek to address; who has the problem, what is currently being offered, what is wrong with the status quo or what should be improved. The impact investor at this stage of the pitch, is thinking about the essence of your pitch and why he/she should listen attentively past this slide. To get the impact investor hooked, the problem identified by the entrepreneur should be real, relatable and verifiable. The problem should be presented briefly and as a problem that the impact investor would ideally be interested in solving.
Market and Opportunity:
This is the occasion to present on the market opportunity you (the entrepreneur) has identified. The total size of the market and what specific percentage of the market the entrepreneur is hoping to capture. It helps to back this up with some verifiable data. This slide should have a sweet spot between elaborating further on the problem and highlighting the number of people facing the problem the entrepreneur is trying to solve whilst it opens up an avenue to speak on the solution (next slide) to be offered by the entrepreneur. Because impact investing goes beyond financial returns to capturing environmental and social benefits, information on the number of customers facing the problem the entrepreneur is trying to solve (the impact investor would ideally want to solve this problem too) and the opportunity to make an impact will heighten the impact investors interest in the entrepreneur’s business.
Solution or Value Proposition:
The solution or value proposition slide should explain the business of the entrepreneur, the product and/or service or solution being offered to the problem identified. It will be ideal for the promoter to think in terms of the benefits of the product or service being offered to the user (who has the problem) instead of characteristics of the product being offered. The entrepreneur risks introducing jargons that might make it difficult to retain the investors’ attention when he/she thinks in terms of characteristics of the product. If there are alternatives to the solution being offered on the market, it will be great to introduce the unique selling proposition (USP) of the entrepreneur’s solution. The impact investor at this stage is looking out for glimpses of the environmental and social impact that the solution could offer to the wider community.
Competition and Strategy:
So yes, the impact investor is interested in solving the same problem the entrepreneur is trying to solve and the entrepreneur has offered the ideal solution. The question remains, is the solution unique or one of numerous solutions on the market? Is there an opportunity to capture and maintain a sizeable piece of the market? This slide offers an opportunity to highlight the potential competition the entrepreneur faces, how the entrepreneur perceives the competition, but more importantly, what strategy would be deployed to ensure that the entrepreneur and the businesses remain profitable and continue to grow. For the impact investor, he/she would probably be thinking of the potential to scale up the business and offer the ultimate solution described earlier to a wider market. To keep the investor’s interest, it will be ideal to speak on the competition (if any) that exists and how the business strategy will help scale up the business in spite of this competition.
Impact Investors, like traditional investors, invest in a management team and its ability to execute on the business plan or strategy. The strength of the core team working with the entrepreneur or business is highlighted on this slide. The entrepreneur should present a competent team with a proven track record who will play central roles in the business. The impact investor is probably thinking not just of the track record of the team, but their dedication, resilience, and willingness to stick with the vision through any challenges and it helps for the entrepreneur to think along these lines when pitching. If the team lacks the required expertise, the entrepreneur should show the willingness to hire the appropriate experts to fill the right positions. The entrepreneur should aim to make the impact investor want to be a part of a great, winning team. There is an old saying that holds true for many VCs – they would prefer to support a not so great business idea led by an accomplished management team rather than a great business plan supported by a team of inexperienced managers. In addition to the core team, the impact investor is also interested in the governance structure of the business and the advisors on board.
The impact story, for impact investors is very important. This is where the entrepreneur brings everything together; how the entrepreneur hopes to make significant impact, environmentally and socially, whilst delivering attractive financial returns to the investor. It helps to present this slide with some numbers and graphs. It is important to note that a business could look attractive from a financial perspective but if there is weak social or environmental impact, impact investors might decline to invest. Depending on the type of investor, impact could be measured differently – number of lives touched, direct and indirect jobs created, metric tons of carbon emission saved, number of women, children and youth supported, taxes paid, etc – and this slide must speak to that. It is therefore important for the entrepreneur to do his/her homework regarding the impact investors area of interest or, more technically, impact lens. Above all, the entrepreneur should provide an attractive return multiple to the impact investor upon exit.
COVID 19 Strategy:
COVID-19 has impacted various aspects of the normal lives of the world’s inhabitants, social systems, world economies and businesses. It has shown the world that the old ways of doing business and running a company, are not perfect and leaders and entrepreneurs have to re-think what business do and how to do it. Companies must demonstrate the ability to survive a brutal business environment in the short-term during this pandemic period in order to take advantage of long-term opportunities. Survival is top of the mind for every entrepreneur today, however, thriving post-COVID 19 is more important. The impact investor would want to know how the entrepreneur and his management are surviving and intend to thrive. What has been the impact of COVID 19 on the key business metrics like revenues, cost of production and general expenses. It helps for the entrepreneur to present a COVID 19 strategy which outlines the strategy being implemented by management now and how the company is positioned to survive should there ever be another Global pandemic. The strategy, amongst other things, should highlight how the company expects to win-back customers, accelerate digital transformation and create advantage through resilience.
As the saying goes, first impressions matter, and a pitch deck could make or unmake a business. Entrepreneurs should endeavor to make it count when pitching to impact investors.
(Reference: UNCTAD 2019 World Investment Report. Pg 37. https://unctad.org/en/PublicationsLibrary/wir2019_en.pdf)