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February 20, 2018

Why South African Investors Should Never Invest Pre Product

I hear more and more stories about how South African investors (or just generally people with excess cash) pour money into startups pre-product and end up coming short.

It’s no surprise because you’re essentially investing in:

  • A product that hasn’t been proven in real life.
  • A team that has yet to figure it if they’re genuinely compatible, or:
  • A founder that is yet to prove themselves in the current market/climate.
  • A business with no customers.
  • A business with no financials – you will have no idea how these individuals handle their money, or even if they’re people of financial integrity.
  • More often that not, a young team that still has a lot to learn on many levels.

Here’s the point, investors. You’re not doing them any favors by throwing money at them to take their amazing tech to market.

Here’s why you should only invest in a team or founder that has a business with traction:

The Founder:

Any person with a real drive to solve a problem will find a way to start developing their product right away regardless of whether they have funding or are still looking for funding. The weakest thing any founder could say is that they can’t progress until they have funding.

If you come across a founder with a promising idea, tell them to work on it and come back when they have deployed a product that is being used by real, paying people that are not their friends or family.

Let founders prove themselves before they are eligible for your hard earned cash.

The Location:

South Africa is a unique place. We’re technically advanced, but there isn’t a complete ecosystem of innovation like there is in other parts of the world. Extremely smart people mostly work in isolation or very small teams, which makes it easy to give up if things don’t go as planned.

Without a product in the market, there’s far too much of a risk it won’t happen – there isn’t enough general accountability or expectation of tech founders.

There are also a lot of problems to be solved in South Africa – problems that annoy us all. It’s easy to get emotional about funding a team that is solving a problem that we have daily, but actually doing it is much harder than just talking or writing about it. Deployed tech will speak for itself.

The Media:

I’ve read about multiple startups in publications that are in Stealth Mode, which basically means they have no product and absolutely no idea what they’re doing. Don’t give into the FOMO. Do you see SpaceX hiding what they’re working on next? No. Because they know nobody can beat them at their own game – founders should be that confident in what they’re doing. And if they do tell others what they’re doing and their idea gets copied, it wasn’t a great idea in the first place or they didn’t execute fast enough.

Apple does hide what they’re doing, but that’s because the competition is so tight, and let’s be honest, their innovation isn’t all that amazing anymore – they need all the advantage they can get, and anyone can copy what they’re doing at a much lower price.

If you read about a startup and they’re secretive about what they’re doing, write them off. It makes for good media publications, but not good business or innovation.

Summary:

Until there’s real, objective data that a product is doing what it is intended for, and until the founding team has proven that they’re honest and driven, they don’t deserve a cent of venture capital.

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