Raising funding for a new tech business is notoriously hard in South Africa. Even harder is finding the right investor. Alexandria Procter raised R12 million for her student housing platform, DigsConnect.com, and learnt about how important it is to partner with someone who shares your vision.
Alexandria, together with two of her friends from university, Greg and Brendan, officially launched DigsConnect.com in January 2018 – an online platform that allows students looking for accommodation, and landlords looking to fill rooms, to connect and communicate directly.
The business was started by Alexandria when she was an Honours student studying biology at the University of Cape Town. Having served as the Day Student Coordinator on the Student Representative Council while she was studying, she had seen first hand how difficult it was for students and landlords to find each other, and so, wanted to build a solution to address this. Over a long weekend at home with her parents, she hacked together a basic website that would allow the two parties to match and communicate with each other in one central place.
Once she set the website live and people started using it, she realised that pursuing this venture was something that she wanted to do full-time, and so, dropped out of her degree. “Making this decision was quite hard,” Alexandria shares. “I didn’t really know what to do in that moment but I believed in the idea I had and so, I figured I would just have to make a plan.” This involved really banding together as a team with her friends and making financial sacrifices, like scaling down living expenses and cutting out social activities while the business started gaining momentum.
At the beginning of 2018, the DigsConnect.com site was seeing a huge amount of traffic as more and more people started signing up to it. “Once word got out at UCT and people saw their friends using it, we had dozens of profiles being created every day. It was suddenly like, oh wow, this is a real thing!” Alexandria says. It became obvious that the team would need more money to grow the platform in order to keep up with its steadily increasing user base, and so, they set out on a fundraising mission.
After a few months of meeting with investors, the DigsConnect.com team signed a deal that secured the company R12 million – one of the largest amounts of seed funding ever raised by a South African startup.“Going through this process made me realise that it’s about more than just the money though,” Alexandria says.
“It’s about finding someone whose vision for the company aligns with yours. At the end of the day, I think that finding the right investor is the most important thing.”
In order to meet the right investor, and build a successful relationship with them, Alexandria says it was absolutely key that she:
- Got advice from the right people,
- Prepared really well for meetings, and
- Was honest about herself and her business.
Get advice from the right people
When Alexandria first set out to raise funds for DigsConnect.com, she had no existing financial connections and didn’t know how to go about setting up meetings with VCs. With the threat of wealthier companies capitalising on her idea, she knew she had to do something about this.
As a starting point, she reached out to people in her network who could offer advice on how to launch an official fundraising campaign. She ended up meeting Simon, a friend of Greg’s brother, who had experience with raising money for new businesses. He agreed to join the team for a couple of months to help equip them with the skills they would need to effectively interact with investors.
“Simon was phenomenal,” Alexandria says. “He joined us in our tiny little office and poured so much energy into helping set us up to win.”
Simon really stressed to Alexandria that she needed to have a solid base: In order to do what she was excited about – share her passion for DigsConnect.com and her big ideas about its future – she first needed to understand the basics, such as the admin that goes into preparing for meetings. When she had mastered that, he said, she would have established herself as a professional, making investors more likely to take her proposal seriously.
Following Simon’s advice, Alexandria learnt that these are the key things any new business owner should do when setting out to secure funding:
- Do your research on what projects your potential investors are interested in funding: Alexandria learnt that she needed to have an idea about what projects or initiatives the investors she wanted to speak to were interested in working with. Through online research and talking to people, she saw that if a business idea didn’t fall into one of the investors’ categories of interest, she almost certainly wouldn’t be able to secure meeting time.
- Establish a sense of what type of people the investors are: “This can be hard because often you only get a feel for this when you are in the room with them,” Alexandria says. Networking was useful to give her a rough idea on what she could expect, however, and she used this to base a lot of her strategies for the meetings on. “My team and I are pretty loud, and very passionate about what we’re doing, but Simon helped us understand that some people, especially the more old-school investors, might not be receptive to that, and so, an appropriate first impression is important if you want them to engage with you seriously,” she says.
- Book meetings before you feel ready for them: There are dozens of companies in South Africa at any one time looking to set up meetings with only a handful of investors, and so, Alexandria learned that booking meetings in advance was crucial. “This was one of the biggest things Simon taught me,” Alexandria says. “We didn’t want to commit to anything until we felt like we were ready but he said if we didn’t take the leap, we might miss out altogether. People don’t wait around for you so you’ve got to act fast if you want to get ahead.”
Prepare more than you think you need to for meetings
After having done her homework and booked a few appointments with potential investors, Alexandria started thinking about her strategy going into these meetings.
Doing some calculations, she realised that she would need to raise at least R2 million to grow the DigsConnect.com platform to at least keep up with the number of people using it. “Up until that point, we had been paying a R50 fee to host our site. We really needed to ramp up our infrastructure support to keep us competitive,” she says. “It was a lot of money, so following Simon’s advice, I knew I needed to be really well-prepared so that investors would trust me enough to give it to me.”
Thinking back on the best meetings she had during her fundraising round, Alexandria learned that doing the following things before sitting down with the investors was key:
- Know your numbers: Alexandria found that she needed to have a very clear understanding of where her business was at financially as the investor was going to be most interested in the figures. To be taken seriously and hold her own in the meeting, she needed to know how the books were looking. “It’s tempting to want to make the situation you’re in sound better than it is, but this is risky,” Alexandria says. “If the investor catches you out on something, and you can’t come up with a legitimate explanation, they’ve already struck you off their list. It’s vital to be completely honest about every aspect of your startup, warts and all.”
- Promote what makes you special, but back it up with evidence: Alexandria knew that the investors that she was approaching have hundreds of meetings every year, but only choose a handful of companies to put time and money into. This meant that her pitch had to really stand out. “It needed to be bangin’,” Alexandria says, “It needed to look fresh, be well-laid out and thought through. We found that we needed to make sure the presentation really showed why our idea was different to all the others.” Having data to back this up proved to be important too. “Investors like numbers, and they like facts. I learnt that while enthusiasm is what opens the door, it is evidence that really appeals to them and closes the deal,” Alexandria says.
- Present a united front: A successful business has many moving parts, and requires a lot of different people to manage them. Alexandria found that going into a meeting as a team, she needed to demonstrate that everyone understood their roles in order for investors to trust that every aspect of the business was going to function well. “The guys and I went into meetings with the understanding that we would all contribute to the conversation, so as not to be caught on the backfoot. Brendan manages all the IT stuff now, for example – he left me in the dust when it comes to that long ago – so it didn’t make sense that I should talk about our technology stack just because I was the CEO.” Alexandria found that taking steps like this to feel comfortable was the key to feeling empowered in the moment.
Be honest about yourself and your business
Alexandria quickly found that the hard work she had put into preparing to meet with investors was paying off: DigsConnect.com was popular with many of the investors that she met with and some were even willing to sign contracts on the spot.
She realised, though, that accepting the first decent offer that was put on the table for the sake of having the money wasn’t the smartest thing to do for her as a business owner. “I had been having so much fun building the platform and I knew that there was so much potential in terms of what we could still do with it. I needed help with this but I didn’t want to give it up or lose out on being involved,” Alexandria says.
A lot of investors were keen to put money in immediately but they wanted the business to operate on their terms. Securing funding was urgent to help the business grow, but the team decided that authenticity was their top priority.
“I came to see the fundraising meetings a lot like dating. You’re laying all your cards on the table and deciding whether you want to build a long-term relationship with each other. You’ve both got to buy into this 100% or it’s not going to work out.”
After making the hard decision to turn down a few really good offers, Alexandria and her team met the investors who they really clicked with. “It was instant chemistry, to go back to the dating thing,” Alexandria shares. “We met people that we really like and trust, and who are fully onboard with us.”
Here is what Alexandria thinks it took for her to get to this point:
- Always keep your mission in mind: Alexandria found that the easiest way to make decisions was constantly returning to the company’s mission. “I kept this front of mind every time I was faced with a difficult choice. I knew I wanted DigsConnect.com to play a role in building a community and so, if an investor’s ideas didn’t line up with that, it made it easier to say no.” This also helped to keep the team aligned, which was important in ensuring that things didn’t fall apart internally during this turbulent period.
- Be sure of yourself: The more interviews Alexandria went to, the more she realised how important maintaining her personality in negotiations was. “I was sure that no matter what deal we struck with investors, I was going to be very hands-on when it came to the business’ future. I needed them to know that, and be okay with what they were getting themselves into.” To do this, Alexandria did as much as she could to let her personality shine through during meetings: “I wore flower crowns, because I love those, and I spoke loudly because that’s what I do.” To have a successful relationship with an investor, she knew that they both needed to be as excited about working with each other as possible.
- Be open to new ways forward: “I knew from the beginning that I didn’t know what I didn’t know,” Alexandria says. While she had a clear idea about what DigsConnect.com was founded on, she admits that she wasn’t entirely sure about what it could become when it had more money to work with. “Whenever I spoke to people in meetings, I made sure I listened closely for any advice they had or ideas that I hadn’t thought of. Critique can contain many valuable lessons.” This helped her a lot when it came to getting a sense of who had good intentions for the company and who she would like to work with to grow the base that she had developed.
“The amount of money that we ended up raising was way more than we had anticipated but, what we were really excited about when we finally signed that contract, was having a real support structure in place. We have a great relationship with our investors, and we can turn to them whenever we need any advice. Even though we seem to have tapped into something that people really want, we’re still figuring a lot out. Knowing that we have these experienced people who care so much about our idea backing us, though, makes us really excited about what’s ahead,” Alexandria says.
