6 reasons why Caribbean tech start-ups cannot access funding
What are some of the challenges in securing business financing in the Caribbean? This post offers 6 reasons relevant to the tech/ICT industry.
The challenges of financing a start-up, and a tech start-up in particular, is a common lament across the Caribbean. Frequently this claim has also been a deterrent to many to develop their ideas and start a business. This post outlines six reasons why access to funding can be difficult in the region.
1. Not much funding is available
This is a cold hard fact. In addition to limited Venture Capital and few Angel Investors being available in the region, conventional financial institutions consider most tech operations as risky ventures. Start-ups might have a better chance of securing funding if they are working with more tangible products, than trading in services. Nevertheless, commercial lending rates, which tend to be exhorbitant, are normally applied, along with considerable collateral provisions, which a young entrepreneur might not readily have at his/her disposal.
2. The business model is not viable
Many tech businesses, especially those based on mobile applications, social media, or on developing a following, have been finding it challenging to develop viable business models. Traditionally, tech businesses built around websites generated revenue from advertisements (ads) placed on their sites.
However, based on the experience of wildly popular sites, such as Google, Facebook, Twitter and LinkedIn, profitability through advertising is not as easy as it seems. Hence, start-ups owners in particular, cannot afford to be naïve or complacent, believing that revenues from ads alone will be sufficient to cover their expenses. More rigorous thinking is necessary, which it is advised should be captured in a business plan, especially since preospective financiers – even Angel Investors and Venture Capitalists – would be more inclined to support a start-up that is likely to succeed.
3. Owners have poor presentation/marketing skills
As passionate as you, the entrepreneur, might be about your start-up or your business idea, you can talk (or write) yourself out of funding if you are unable to clearly present your idea or business. Two extremes are regularly witnessed at speaking events:
- those who talk too much, and
- those who are not dynamic, even downright boring.
Nevertheless, the outcome is the same: the idea or proposal is not succinctly or convincingly communicated.
Start-up owners should be prepared to practice their sales pitch at different lengths: the elevator pitch (around 1 minute); a short presentations of 3–5 minutes; and even for up to 15 minutes. It is critical to identify the key points that must be conveyed to the audience, and to keep the presentation simple, especially when limited time has been allotted.
However, it is also important to know your strengths. If public speaking is not on that list, it might be wise to ask a business partner or associate, who might be more comfortable and/or proficient, to take the lead in such activities.
4. The venture is not being operated as a business
For many start-ups, particularly those that have developed organically or have grown out of a side project, they are not being run as commercial ventures. This could range from not being formally registered as a business (such as a sole trader, partnership or company), to not maintaining financial and other essential business records.
Operating a business requires discipline. Many investors would prefer to have access to some evidence of how the business is being run, in order to have some confidence in its management, and to be able to offer advice as might be necessary.
5. Owners are not prepared to share
Although the tech communities in the individual Caribbean territories are relatively small, there frequently exists a certain level of isolation between the members, which is also reflected in the attitude of start-up owners when seeking financial assistance. In some instances, they cannot provide much information to prospective investors, since the venture was not being operated as a business in the first place. However, from time to time, others find the level of inquiry invasive, and are not prepared to supply the requested documentation. In other words, they want to access the funds without providing much information to investors.
6. Business (or owners) have no track record of success
Occasionally, start-up owners seek financing in order to launch the business, or to use very soon thereafter. However, the absence of a track record could put those businesses at a significant disadvantage with regard to funding. Financiers tend to be more prepared to support ventures that the principals themselves have already invested in, and when there has already been some success, but when funding is necessary to expand or grow the business.
In that regard, bootstrapping a business is often not given enough credit to get a business off the ground. Owners should be prepared in the early stages of their start-ups to explore creative ways through which they could be sustainable with little or no external assistance.
Finally, although it goes without saying that there is a need for a more enabling environment to be developed across the region to nurture start-ups, especially those in the ICT/tech industry, we, as entrepreneurs, must also be better prepared run our businesses. Providing financing to businesses – be it in the form of loans or grants – is riddled with risks that investors must manage. Hence we ought to be able to demonstrate that our business is a worthwhile investment and that we, as the managers, are competent enough to shepherd the venture to realise the desired goals.