RENEW Strategies

Guest Blog: An Inside Look at the Investment Pipeline

alt text
Erin O'Connor
| February 21, 2018

GUEST BLOG:

This is a guest blog by Jeff Turi who is a member of the Impact Angel Network (IAN) and proud investor in many of the IAN's portfolio companies.

As an active member of the IAN, I enjoy listening to the monthly pipeline calls. It's always exciting when a new company is discussed or an existing opportunity comes closer to funding. On the flip side, it can be frustrating when new companies are not coming up for discussion.

For the past month, I've had the opportunity to work with RENEW and the team in Addis Ababa. It was great to be able to "lift the curtain" and see the work that the team does to move a company through the pipeline from first introduction to funding. My goal with this blog is to help investors get better insights into how companies are screened and how they work their way through the pipeline. I was pleasantly surprised to see there is a very detailed and rigorous workflow that ensures only strong companies and entrepreneurs get shown to the IAN.

Step 1: The Pre-Pipeline Process:

Each member of the RENEW team knows they are a salesperson. Everyone is responsible for identifying prospects via sector research, industry events, networking and even walking through Merkato. The group has a 2018 KPI of holding initial screening interviews with 120 companies. After this initial meeting, the team works to gather information, receive financial information and further qualify the entrepreneur and their company. The last hurdle in this phase is convincing the Investment Committee to approve the company to move to the next step in the funnel.

Step 2: Active Pipeline #1:

In this section, the team conducts much more detailed interviews with the entrepreneur and gathers significant company and industry intelligence. Financial models are created to examine the investment, working capital growth and future cashflows. As requested by investors, companies will be discussed with the IAN for the first time, either during an Econ-Tourism Trip or via the monthly Members Call. The last hurdle in this phase is ensuring that the potential forecast reaches a 25% IRR under conservative conditions.

Step 3: Active Pipeline #2:

Initial information gets loaded onto the Gust website (make sure you check out this really nice database). The term sheet is negotiated to ensure we can reach favorable terms. Also, the difficult work of creating the Confidential Information Memorandum (CIM) is completed. The last hurdle is asking investors for their financial commitments so the team knows the deal is supported for funding.

Step 4: Active Pipeline #3:

Extensive due diligence is conducted using the experience of our local team to really turn over all the rocks to identify any show stoppers.

Step 5: Active Pipeline #4:

This is the final stage of the pipeline but also a difficult one. I am amazed at how challenging it is to get through the government bureaucracy in Ethiopia! Besides completing all the legal documentation, the entrepreneur has the opportunity to enroll in the 18-week Exec's Program. The final CIM is completed and reviewed with investors. Only after all these steps are managed is the capital call made for investors and the deal closes. Whew - that's a long and exhausting process. HOWEVER, even after all this hard work and analysis, the amount of business risk is still large. This is a developing country so nothing is ever easy or guaranteed.

Hopefully, members of the IAN can appreciate how hard it is for companies to get through the screening process and why a company you might have been interested in from the the initial presentation is no longer being discussed. The goal for 2018 is to start with 120 in order to make 3-4 investments in businesses. Investing in a company that is 3,000 miles away can certainly seem scary. Now that I know more about the detailed pipeline process, I am even more comfortable with the investment opportunities that will be provided for my consideration.

Jeff Turi, IAN member since 2013

To find out more about RENEW or the IAN, contact us at renew@renewstrategies.com, follow us on Twitter @RENEWLLC or find us on Instagram @impactangelnetwork. Be sure to check out our upcoming events, including the upcoming Econ-Tourism Trip September 23 - 29, 2018.