Attracting investment in any sector can be a complex undertaking, in aviation, even more so. But attracting investment in aviation in Africa? That presents an entirely next level of challenge. To succeed you don’t just need the basic requirements you need to go a lot further to reassure investors.
You will first need a clear understanding of the right type of financing for your business, how to maximise value and be focused and methodical in choosing the right investor. Getting any of these wrong could lead to unintended consequences = no investment.
The fundamentals of finding funding
Whether you decide to raise debt or equity, the fundamental approach is no different – everything comes down to your corporate strategy and your ability to articulate it properly.
You need to be clear on your long-term plan (typically across five years) and how you’re going to implement it. You also need to be able to explain how you’ll not only identify the inevitable challenges to your business or industry that come up and, of course, how you’ll react to or overcome them.
Once that’s in place, it’s vital for the senior management team to reach an agreement on what financing requirements are needed to make it happen – and, most importantly, which investors or lenders suit your industry area, geographical interest, business objectives and growth plans.
One thing that can stop this in its tracks is vagueness: investors and lenders need to be persuaded that you’re capable of both delivering growth plans and servicing the borrowing, and that will only happen if you can demonstrate granular knowledge of your business, its nuances and forecasts. They’ll also want a precise and clear articulation of why you need the money – whether it’s for people, products, new premises, entering new markets or overseas expansion – and how that supports the returns you’re projecting. Don’t be vague about this, don’t over-estimate or under-estimate your needs.
Types of funding available
There are many different funding options for businesses. For early-stage businesses, for example, options include independent private investors, venture capitalists and other types of ‘incubators’ who provide funding and advice to startups.
If you’re a larger business with more specialised leadership roles, don’t leave a commercial financing discussion solely in the hands of the Finance Director, or CFO, as this may result in a view led by an appetite for risk and debt rather than the wider commercial perspective. Include a wider senior project team, they’ll be looking at other factors and considering the need to retain greater flexibility in their access to capital.
The funding landscape breaks down into three broad territories:
The debt market: If your investment plans are modest, debt can often be leveraged against existing assets or cash flows of the business. It’s also cheaper than equity. However, debt can hold growth plans back if the debt facility isn’t sized to grow with your business, so you have to make sure that your finance plans and corporate strategy are in perfect alignment.
Private Equity: Private Equity can be used in conjunction with debt to raise more capital. This type of funding may also be able to offer an extra injection of capital to fuel growth, as the structure is sufficiently flexible to provide an additional boost. However Private Equity investors will install a board representative and take a share in the business. This route isn’t for everyone, but it can be a real benefit if market or specialist knowledge is needed.
Public Equity: Listing the company can give you a strong growth platform, but it comes with a much heavier set of responsibilities around corporate governance, disclosure and transparency, so the overall balance of benefits will depend on the size of the business and the team’s capability to deal with more stringent processes.
Dealing with the ‘Africa issue’
African business is not without its negative reputation, whether that is based on governmental, regulatory, transparency, or governance or corruption challenges, the additional risk factor cannot be avoided entirely. You can reduce the perception of risk, by being clear and as upfront and honest as possible. Credibility is one of the biggest challenges to overcome, followed by trust in the team to deliver.
