Insights on the ups and downs of fundraising

Emiliano Mroue is the CEO and founder of WARC Africa, a limited liability company with operations in Sierra Leone and Ghana. The company was founded in 2011 and focuses on transforming rural Africa by finding smart ways to assist economic growth in rural economies.

Can you tell us more about WARC’s approach?

WARC’s model is based on disseminating technologies to smallholder farmers that allow them to increase productivity and income and to preserve the soil. We are helping farmers to harvest not only once a year, but two or three times, and we support them to get better prices for their produce.

How is WARC funded today, and how has this evolved from when the company was first founded?

In a country like Sierra Leone, funding is an extraordinary challenge. We are in one of the poorest countries in the world, with very fragile institutions. But at the same time, it's a country that has extraordinary potential for transformation.

Initially we had two angel investors who supported us and helped us to get things started. In 2014, Ebola broke out and pretty much every investor ran away from Sierra Leone. At that time, we raised debt funding from Cordaid, a Dutch NGO with an investment fund. They have been fundamental in helping us catalyse other funding, both equity and debt, and get back on our feet after the Ebola outbreak. Most recently, we closed debt funding with Kenyard , which is a UK family office and completed a Series A funding round with a well-known institutional impact investor.

Can you tell us a little bit more about these recent deals?

The Series A was a very long and in many ways intensive process. In general, institutional investors have extremely deep due diligence processes, especially if it's equity. Equity investors typically are a lot deeper in their due diligence than debt.

So the level of due diligence was extremely deep, but it validated that our financial management, our business and impact model are on the right track. We decided very early on to focus on building strong financial control processes. Even though that felt like additional bureaucracy at an early stage, this paid off for us and enabled us to attract an institutional investor.

What skills are necessary for entrepreneurs and for funders to successfully raise funds and finance?

I think it is a combination of several skills. First of all, the entrepreneur has to have the skills to be able to: a) identify an opportunity, b) be able to design a strategy to tap into that opportunity, and c) mobilise not only the financial resources, but especially the human resources to execute those plans. It's essential to be able to develop networks and to attract people’s attention to a story in a very short period of time.

Initially, the entrepreneur doesn't have much more than an idea, and the willingness and the energy and the passion for something. He or she probably does not have the resources to hire people purely based on a salary and will need to be extremely good at persuading people to follow him or her based on other reasons. These early staff are typically extremely mission driven and will look for something that goes well beyond financial compensation. Similarly, you need to be able to persuade investors to move from a five minute conversation into diving into a presentation and then developing a business plan and conducting full due diligence. This requires a lot of verbal and nonverbal skills.

Finally, some hard skills are required. Entrepreneurs must have some basic knowledge of finance or at least employ somebody who does. Pretty much every investor sooner or later will ask for a financial model and this reflects a lot how someone is looking at things. The good news is that finance is very technical in many ways and these skills are easier to acquire than soft skills. There are lots of tools, books and online courses available. We don't need to be financial wizards, but we need to know the basics.

Businesses often complain that there are not enough funding opportunities while investors say that they can't find investable businesses. What causes this mismatch in your opinion?

In my view, there are way too many fail stories and very few success stories. Entrepreneurs get frustrated because investors seem to be very risk averse. But we need to understand that investors burned their fingers on similar businesses with similar stories many times before. It is very important to show investors how you are different.

I think sometimes we also fail to understand our skill gaps. We are too focused on our business, in our sector, in our country. Investors have seen hundreds of different organizations, so it's a lot easier for them to spot skill gaps with the experience that they have.

Finally, in many cases entrepreneurs don't speak the same language as the investor with regards to finance. Investors get very frustrated when they cannot get information on return rates, the IRRs, the financial risks, etc. I have seen that constraint in many fellow entrepreneurs when they tried to raise money.

Did you also have this perception when you started WARC in 2011 was that something that you only learned eventually?

Well, we failed many times trying to raise money. As I have some education in finance, it was easier for me, but we were rejected tens of times for one or the other reason: either because they didn't want to invest in primary agriculture et cetera.

I think the toughest spot with the biggest scarcity of capital is somewhere between seed and expansion capital. Seed capital is relatively easy. Usually you can find people who are willing to risk a little bit of their own wealth to support you. But when you go out for the first time trying to raise external money with no proven track record in a very risky environment, there are very few people that are willing to take that risk. For us, Cordaid took that risk. In Sierra Leone, they are the only ones and in many other countries there are only a handful of these investors as well.

In my view, this is a fundamental space investors fail to recognise when they say that “there are not so many projects." They are sitting on piles of money, because they are looking for more mature post revenue organizations.

WARC has operations in Ghana and Sierra Leone. Was it is easier to get funding in a country like Ghana compared to a country like Sierra Leone?

Yes, absolutely. It is easier because there is a lot more supply of capital. There is a lot more competition as well, but we feel that it's easier because it's slightly more commercial. In Sierra Leone, there are so many inherent risks in doing business that investors there are putting a lot more emphasis on the social impact than on the financial return.

Do you feel like you are creating more impact in Sierra Leone?

It's different. Ghana is a middle income country, and Sierra Leone is one of the least developed countries. In Sierra Leone we are targeting farmers that are actually living below subsistence level. The impact is a lot more palpable as we are working with farmers that were chronically hungry and now generate income. They now have some disposable income and their kids can go to school.

In Ghana farmers are a lot more developed. They have some income generation and are not at subsistence. Still they could do a lot better by using the right technologies than what they are using now. Therefore, it is more about farmers being able to move from being smallholder farmers into operating slightly larger farms. We are able to create jobs so that they themselves can hire people and move up the ladder.

In the early stage and growth phase of WARC, how did you find opportunities for investments?

I think it was mostly through networking. Most of it was through meeting people here and there, and then being introduced to new people. At this stage, we know who the impact investors are who are focused on x, y, and z within our geography and our sector. That's a great shortcut for us. We are now just screening who could be a potential partner and then finding a way to connect. This helps us to only reach out to the relevant investors and to save time by not reaching out to the wrong ones.

What is your advice to entrepreneurs? How can they find this kind of information on investors?

The obvious answer is conferences and stuff like that. In all countries, there are many people that are trying to connect entrepreneurs with investors, with different projects. Then internet research. I don't remember where it came from, but at some point I had an Excel file with all the impact investors in Ghana and Sierra Leone, saying who is focused on ag or on health, et cetera. We already knew most of the names, but it was still a way to pre-screen who is relevant.

Do you have anything else to add?

For me the greatest challenge is to manage the constant frustration that we have to go through in our businesses. Frustration because we are operating in difficult environments like Sierra Leone. Frustration because it's sometimes hard to persuade people that question if what we are doing makes sense, and if we are the right people. Managing these constant rejections is very tough.

It doesn't matter how good you are, you will be rejected many, many times along the way. Because there is a mismatch or because the country is not the right place for the investor, or for whatever reason. Being able to not take this personally is something very useful for entrepreneurs and results in building the resilience that we as entrepreneurs need to move forward.

Thank you!

Further reading: The startup funding stages you should know as a business owner on TMS outsource