In today’s competitive business landscape, securing funding and managing finances effectively are crucial for entrepreneurs looking to start or expand their businesses. In a recent podcast interview with Cheque Point, Jigar Sagar, a seasoned investor and advisor with over $350 million in ventures, outlined the essential strategies for attracting investors, building trust and ensuring sustainable growth.
Sagar shared insights on the importance of well-prepared pitch decks, realistic financial forecasts and robust internal processes that not only attract funding but also foster long-term stability. He emphasised the value of a strong team, clear business vision and maintaining compliance with financial reporting standards as essential steps for entrepreneurial success.
What are some effective ways entrepreneurs can secure funding to start or expand their businesses, and what are the best financing options available for different businesses?
In UAE, bootstrapping is the primary way people go about their journey with entrepreneurship, which is using their own personal savings. You will also find people reaching out to friends and family, but they must be careful to put the right agreements in place. Otherwise, it can get complicated. Apart from that, we haven’t seen a burst of crowdfunding out here yet in the Middle East, and per se, it’s not accessible to every entrepreneur. In fact, bank loans are the primary go-to place for most SMEs and startups. Apart from that, you have angel investors, such as myself, investing in many businesses and doing startups. Once the business is scaled up, you can also go to venture capitalists. You have a few of those in and about DIFC and those areas, and they are growing in numbers as well over here in Dubai specifically.
What are the key elements that attract potential investors? How can startups get funding from angel investors? How should entrepreneurs approach when it comes to pitching their businesses?
If I’m looking at a pitch deck and talking to the person, the first thing I care about is the ‘why?’. Why are you doing this? What problem are you solving? What value are you creating? How are you helping add value to the world and the society? Doing a business for the sake of making money is not enough. I think it’s a chicken-and-egg situation. You won’t make money, especially in a sustainable format, unless you’re truly adding value. Therefore, when someone wants to put a pitch deck out there, they should start with why and what their passion is.
The second criterion is that investors look at who’s behind the venture, the team itself. Many times, I will go and invest in people rather than investing in the idea, because of the experience of that team, the previous success stories of that team, the passion and the willingness of that team to come together and the combination of all the right ingredients when a venture is coming together. If there’s someone out there with a good idea without a good team around them, that’s a red flag. So, I look to see if they are covered in all aspects of a business because one person will not be able to do it all.
Another criteria that I look at is the vision. What’s the outlook? Where do they, as the founders, see themselves heading from a business perspective? What’s their long-term vision? Have they set goals in place at strategic milestones? So are they organised? Do they understand where they are and where they’re going? Do they have a strategy in place? They could be raising funds. And they don’t need to raise funds for the end result; they’re raising funds, probably for a milestone. So, do they understand how they will use those funds for this milestone, what happens if they achieve it, and what happens if they don’t? Do they have the ability to be flexible? Do they have the ability to pivot the business idea if things don’t go according to plan?
When I look at investment opportunities, I look at data. One of the biggest mistakes people make is to invest without looking at the data. It’s okay that, when someone comes and approaches me to invest, it’s an existing business idea. It could just be an idea. But have they put in that effort of benchmarking what’s out there, even if it’s not the same as the competition. Have they done the financial benchmark? Have they done a benchmark in terms of what to expect? What’s the market size? Who are they targeting? So it’s very important that they have a financial forecast, and not just a P&L forecast; they should also have a cash flow forecast because I have seen way too many businesses burst just because of cash flow. From that perspective, it’s imperative to see that that forecast has been put in place, not just from a P&L perspective, but also cash flow.
Finally, in terms of making the decision to invest, you also want to look at the unique value proposition of that business. Now, I firmly believe you don’t have to invent to start a business. Adding value does not necessarily come just from a new invention. We’re not going to reinvent the wheel every time. But what’s unique about what you’re offering? You could be providing a better quality product, delivering a faster service, the price point could be different, cheaper and more attractive. One can differentiate in many ways, but how they genuinely show that unique value proposition in their pitch matters.
What are the top three red flags you look out for while investing?
The biggest red flag for me has been the lack of a pitch deck altogether. Anyone and everyone who has an idea thinks it’s okay to approach investors, to invest based on just a conversation. And that’s the biggest red flag. And funny enough, when you tell them to go away and prepare a pitch deck, they never come back, because they can’t be bothered putting in that effort. You can filter out 80% of the people that approach would fall into that category. And it’s also because of a lack of know-how. We don’t get taught in schools how to prepare pitch decks. I have a bachelor’s in Business Administration and Finance. I have a master’s in finance, and even with all those degrees, I was never taught to prepare pitch decks. Having sat on the other side of the table and been in that position where I have to make the decisions is where I’ve understood what I want to be included in the pitch deck to make that decision. But many people out there are struggling to even come up with a pitch deck.
The second red flag is if there is a pitch deck, but you can see they haven’t set targets and goals. They have wishy-washy visions and unreasonable amounts of revenue that they expect to hit. So that’s a red flag because no benchmarking has been done. There’s no comparison showcased. The third is when there is an inability to truly show the value creation and problem-solving, or the ability to meet a need or a desire from that idea.
Talk to me about developing a realistic financial plan budget that aligns with the business goals. How can entrepreneurs be realistic while convincing you that this business is worth investing in?
It depends on what stage of your journey you’re at. So let’s take an example of a venture which has yet to start, and if they have to forecast what’s going to happen, there are ways by which you can assume market size. There are ways in which you can assume what portion of that market size at the price point you’re offering you will be able to capture. These are assumptions, nevertheless, but you can break them down and come up with the ability to create a revenue line, but do it on a monthly basis, at least for the first 36 months, and then you can go and do a yearly plan for the next, I would say, seven years.
Once you have that, you have your variable costs. Realistically, by the time you’re doing this, you already know, to a degree, what your variable costs are going to be, whether it’s a cost of commissions, if it’s a service industry, whether it’s a cost of material, if we are talking about products, and you sort of also have a benchmark about your fixed costs. I also look at whether those financials have covered all aspects of salaries. For example, do they have a Finance team or an HR team? It depends on the size. Are they scaling up the team as the business is growing in their forecast with the revenue? Because you cannot achieve a higher revenue with the same team. At some point, you will need to add on costs and invest in people.
Once the venture launches, you also want to do a check in the first month itself; then you will do the check in the third month. And, are you revising your forecasts? Are you changing it? Are you adapting it? As entrepreneurs, sometimes you fall into the trap where you believe in your vision and the first version of the forecast so much that you’re not willing to accept that it’s not the reality.
So, come in and have a checkpoint at one, three, month six, nine, 12 months, and by the end of 12 months, what you do is you start now looking at historical data. You redo the exercise from scratch for an additional five years.
Please describe the steps that companies can take to ensure they meet financial reporting standards and regulatory requirements.
First of all, hire the right people. I have seen people hired as accountants but not qualified for that role. There is a tendency for startups to go cheap to save the pennies. But it’s better to acquire a qualified resource when it comes to finance matters. So start there immediately. The second is to identify, based on where you are from a location perspective and the regulatory framework you’re confined to, what sort of standards. Is it a gap? Is it IFRS? What standards are applicable and maintain consistency? Apart from that, you’re looking to invest in those resources to be up to speed with anything because the finance landscape is constantly changing. As much as people believe it’s a very dull industry or a boring job, it’s a fast-paced, changing environment where laws and regulations are constantly in motion. One needs to be up to speed with that.
Again, this has been a challenge in the startup environment, where people believe using Excel is equal to accounting, and they might as well have just written something on a piece of paper and thrown it in the bin. And today, the systems are not that expensive. You can get really affordable accounting systems catering to startups, and it helps quite a lot to keep your business in check. So make sure you have the right accounting systems, have the right qualified people, and engage external auditors as and when the affordability or requirement kicks in. I’m not saying that, as a startup, you may want to hire an external auditor on day one, but there will come a time in your business when it’s scaled enough that you need that. So, ensure you get your external auditors in place, who will also help you define the processes. What is missing from the startup environment here is the documented SOPs. I struggle to find them at organisations unless they have scaled to a certain level already, but I’m talking about even companies with 100-plus employees, and you would be surprised that very few of them actually have written SOPs for Finance.
