Five tips for non-tech start-ups to overcome funding hurdles

When setting up a start-up business, entrepreneurs need to rely on friends and family for funding as no venture capitalist (VC) or angel investor will take the risk in that phase of a company’s life, explains CEO and founder of Citron Sara Chemmaa.

As the start-up grows and gains transaction, however, more substantial funding becomes a necessity than what family and friends are often able to contribute.

VC funds are designed for tech start-ups which are “asset light”, as compared to asset heavy non-tech start-ups where cash flow is needed for merchandise, raw material, stocks and manufacturing.

“We need funding to manufacture and the more we manufacture, the more we sell,” says Chemmaa.

Early on, Chemmaa approached several VCs to fund the growth of her Dubai-based mealtime products brand and shared the figures from the company: 100,000 products sold in the UAE in the span of Citron’s two years of operation, 200 to 300 percent growth year on year and recently signing distributor agreements for the region, Asia and Europe.

Despite acknowledging Citron as a safe investment, she was still denied funding on the basis that the VC’s mandate was specific to tech start-ups. 

Applying for an SME loan, the path start-ups in the USA or UK would follow, is also not an easy option in the region.

“In this part of the world it is quite tricky for SMEs to get a loan unless they have a very strong collateral and can afford the high interest rates, which can reach up to 18 percent,” Chemmaa says.

Increasingly in the West, however, VCs and private equity (PE) firms are realising the opportunity in consumer-good start-ups and investing in them with the likes of apparel company Lululemon Athletica and burger restaurant Shake-Shake funding theirgrowth strategies through such models.

While the region continues to lag in this aspect, Citron was able to secure regional VC funding “setting a precedent for all the other women and all the other non tech start-ups that it is possible,” said Chemmaa.

With that in mind, we ask Chemmaa what advice she would give to non-tech start-ups seeking VC funding for their expansion. In her previous roles, Chemmaa was on the VC side as an investor and was also a consultant with McKinsey and Company.

Citron’s goal is to provide innovative products ranging from printed lunch boxes as well as food cutters for children

Reach traction and then ask

It’s always easier to start with funding from friends and family, but once you’ve gained traction and volume and things are shaping up for you, I would suggest to not give up. 

VCs are most interested in traction so come armed with performance numbers and knock as many doors as possible. Ask again and again until you beat the odds because if I did it, then everybody can.

Seek mentorship and incubator programmes

VCs have their investors to report back to so they need to be assured that the entrepreneur has a solid understanding of the business plan and the financial operational components.   

Often times, entrepreneurs have a brilliant idea which they know how to execute but not how to report on or communicate to investors. The incubator and mentorship programmes popping up in the country will help bridge that gap and elevate the needed skill set.

Dream big 

Once you have a story that works and there’s traction, then you build on it.

Investors want to dream big while entrepreneurs are scared of dreaming big as it makes them nervous. When start-ups give big targets, it makes them anxious knowing they have a short period of time to deliver.

But the investors are not interested in start-ups that tell them we are making 1 million today and will make 1.2 million next year as they will feel the growth rate is not enough for them. So know where you want to go and what the dream you’re going to sell the investors is.

Citron have seen 200 to 300 percent growth year on year and recently signed distributor agreements for the region, Asia and Europe

Be convincing 

VC say they invest in the person more than anything else so a lot of it counts on how you can convince them to invest in you.

Come armed with knowledge about your start-up and keep your end-goal in mind at all times.

Seek funding from VCs versus friends and family

When you reach traction, it is always more pleasant to work with professional VCs because you’re speaking the same language and they’re not trying to take advantage of you.

You’re also learning a lot from them and since you have an exit plan to stick it, it will force you to accelerate your growth. It is always interesting to have someone push you to do more.