African businesses seeking capital are often encouraged to sharpen their pitch, improve the deck and explain the opportunity more clearly. All of that matters, but investment readiness also depends on understanding how investors engage with a business, what they assess and why they ask certain questions.
Businesses may not always know where their own gaps lie. Management teams can overestimate their readiness for external capital or assume that a strong business plan and a convincing pitch are enough.
The World Bank has documented cases where entrepreneurs had received business-planning and pitching support but were still surprised by investors’ expectations around issues such as shared ownership and exit.
It concluded that investor engagement needed to become part of entrepreneurship training. This is relevant in Africa, where the challenge is not simply the absence of capital.
African financial institutional investors manage around $4 trillion across pension funds, insurers, banks and sovereign wealth funds, according to FSD Africa. Yet only 2.7 percent of institutional assets are invested in infrastructure and other productive sectors.
Unlocking more of that capital will depend on many things, from regulation and risk allocation to market depth and the availability of investable opportunities. But at the level of an individual business, the story, financials, governance and management team also need to align.
Investors compare what management says with what the financial model, accounts and due-diligence materials show.
Take audited financial statements, for example. To a business owner, repeated requests for accounts may feel like another hurdle between the company and the capital it needs. For an investor, however, the accounts help answer more fundamental questions about growth, earnings, cash flows and the outlook for the business.
Understanding why the questions are being asked is an important part of becoming investment-ready. Businesses need to understand what an investment committee is trying to establish before approving capital, why certain information matters and what credible evidence looks like.
Banks, development finance institutions, investment funds and other providers of capital already support businesses through accelerators, mentorship programmes, financial literacy initiatives and technical assistance. There is an opportunity to make understanding the investment process a bigger part of that support.
But before information can be communicated well, it has to exist. If a business does not understand its margins, communication cannot invent them. And if management cannot explain where cash is going, how much capital it needs or where the biggest risks to the business sit, those are management and financial-information issues first.
For a smaller business with limited resources, hiring an investor-relations or communications adviser may therefore not be the starting point. Strengthening the business’s financial reporting, governance, planning and management information may be more important. Once those foundations are in place, investor relations and communications can help the business prepare for scrutiny that comes with raising capital.
The objective is not only to make the company sound more attractive but to create a clear line between what the business is doing, what the numbers show and what management is telling investors.
That means helping management explain the business consistently across investor presentations, financial information and due-diligence discussions; anticipating the questions investors are likely to ask; providing context around performance; and ensuring that the opportunity, risks and use of capital are clearly understood.
Management may know that the decline was caused by delayed customer orders that were completed the following month. The role of communication is not to obscure the decline, but to provide the context needed to assess it properly. That discipline should continue after the capital has been raised.
The business still needs to report against agreed milestones, explain changes in performance and show how management is responding when things do not go according to plan. Investors need visibility not only when performance is strong, but also when expectations change.
None of this suggests that better investor relations or communication will solve Africa’s financing gap. It will not remove currency risk, deepen capital markets, reduce the cost of capital or make a business with weak fundamentals investable. But information is still part of the infrastructure that allows capital to move.
Investors cannot properly assess risks they cannot see, and businesses will struggle to meet expectations they do not understand. If more African businesses are to become genuinely investment-ready, support cannot stop at helping them tell a better story. It also needs to help them understand the questions investors are trying to answer.