{"id":28057,"date":"2016-03-04T05:00:58","date_gmt":"2016-03-04T12:00:58","guid":{"rendered":"https:\/\/tested-neuron.flywheelsites.com\/?p=28057"},"modified":"2016-03-03T08:09:51","modified_gmt":"2016-03-03T15:09:51","slug":"why-its-critical-to-pick-the-right-investors","status":"publish","type":"post","link":"https:\/\/unreasonablegroup.com\/articles\/why-its-critical-to-pick-the-right-investors\/","title":{"rendered":"This Crisis Shows Why It&#8217;s Critical to Pick the Right Investors"},"content":{"rendered":"<p><strong>In August 2015, I returned from two<\/strong> weeks of family vacation where I went completely offline for the first time in my working career and didn\u2019t check a single email. I was feeling relaxed with a nice cash runway, a new Chief Operations Officer hired, and an aligned board that had approved our expansion plan to enter two new markets.<\/p>\n<blockquote class=\"left\"><p>You won\u2019t regret the extra time you spend finding and cultivating the right partners.<span id=\"tweetquote\"><a href=\"https:\/\/twitter.com\/intent\/tweet?url=http:\/\/bit.ly\/1TRoqt5&amp;via=unreasonable&amp;hashtags=entrepreneurship&amp;text=&quot;You won\u2019t regret extra time spent cultivating the right partners&quot; @ZoonaMike\"><i class=\"fa fa-twitter\"><\/i> Tweet This Quote<\/a><\/span><\/p><\/blockquote>\n<p>I settled back at my desk, turned my computer on, and checked the BBC news website to see what had happened in the world while I was away. The headline read <em>\u201cGlobal shares nosedive on China economic woes.\u201d<\/em> I read the article as an interested observer but didn\u2019t really think much of it. I then greeted our CFO, Keith, and after chatting about my vacation he mentioned the <a href=\"https:\/\/en.wikipedia.org\/wiki\/Zambian_kwacha\" target=\"_blank\">Zambian Kwacha<\/a> had broken the psychological barrier of 8:1 against the USD. It was trading at 7.85 before my vacation, so I also didn\u2019t think that much of it, especially since the Kwacha had been gradually depreciating all year.<\/p>\n<p>This matters to <a href=\"http:\/\/www.ilovezoona.com\/\" target=\"_blank\">Zoona<\/a> because the vast majority of our revenue is in Zambian Kwacha, but we report our accounts in USD, have investors that expect a USD return, and have the majority of our costs in South African Rand. A depreciating Kwacha reduces our revenue and cash flow so that we have to grow even faster just to keep pace. It just so happens that 70% of Zambia\u2019s exports are copper bought by China, which means a slowdown in China drives down Zambia\u2019s exchange rate, which drives down our USD revenue. I didn\u2019t know this at the time, but one of the biggest financial drivers of our Zambian business was the health of the Chinese economy\u2014which was completely out of our control.<\/p>\n<blockquote class=\"right\"><p>In times of need or crisis, true investment partners say, \u201cHow can we help?\u201d<span id=\"tweetquote\"><a href=\"https:\/\/twitter.com\/intent\/tweet?url=http:\/\/bit.ly\/1TRoqt5&amp;via=unreasonable&amp;text=&quot;In times of need or crisis, true investment partners say, \u201cHow can we help?\u201d&quot; @ZoonaMike\"><i class=\"fa fa-twitter\"><\/i> Tweet This Quote<\/a><\/span><\/p><\/blockquote>\n<p>After a coffee and glancing at my email backlog, I mentioned to Keith that we should probably model out a worst-case scenario where the Kwacha depreciated a further 25% to 10:1 by the end of the year. After running the numbers, it was clear that we would have to slow down our hiring plan, as we were due to hire more than 30 new people in the coming quarter. This was disappointing news to everyone, but we felt it was prudent \u201cjust in case.\u201d<\/p>\n<p>Unfortunately, our forecasting was very, very wrong. Just a week later, the Kwacha tanked, and our worst-case scenario of 10:1 came true.<\/p>\n<p>But it didn\u2019t stop there. It reached 12:1 by the end of the month and 14:1 the following month\u2014the largest depreciation in the currency\u2019s history. The Zambian Kwacha was now the worst performing currency in the world in 2015, having depreciated 78% in less than 3 months and 115% since the beginning of the year. In the midst of this, the President even <a href=\"http:\/\/www.bloomberg.com\/news\/articles\/2015-10-16\/world-s-worst-currency-prompts-intervention-call-of-divine-kind\" target=\"_blank\">declared a national day of prayer<\/a> to reverse the Kwacha&#8217;s decline.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" data-attachment-id=\"28079\" data-permalink=\"https:\/\/unreasonablegroup.com\/articles\/why-its-critical-to-pick-the-right-investors\/zambia-graph\/\" data-orig-file=\"https:\/\/unreasonablegroup.com\/articles\/wp-content\/uploads\/2016\/03\/zambia-graph.jpg\" data-orig-size=\"1200,675\" data-comments-opened=\"1\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;0&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;,&quot;orientation&quot;:&quot;0&quot;}\" data-image-title=\"zambia currency depreciation\" data-image-description=\"\" data-image-caption=\"\" data-medium-file=\"https:\/\/unreasonablegroup.com\/articles\/wp-content\/uploads\/2016\/03\/zambia-graph.jpg\" data-large-file=\"https:\/\/unreasonablegroup.com\/articles\/wp-content\/uploads\/2016\/03\/zambia-graph.jpg\" class=\"aligncenter wp-image-28079\" src=\"https:\/\/wary-sunlight.flywheelsites.com\/wp-content\/uploads\/2016\/03\/zambia-graph.jpg\" alt=\"zambia currency depreciation\" width=\"650\" height=\"366\" srcset=\"https:\/\/unreasonablegroup.com\/articles\/wp-content\/uploads\/2016\/03\/zambia-graph.jpg 1200w, https:\/\/unreasonablegroup.com\/articles\/wp-content\/uploads\/2016\/03\/zambia-graph-768x432.jpg 768w, https:\/\/unreasonablegroup.com\/articles\/wp-content\/uploads\/2016\/03\/zambia-graph-810x456.jpg 810w, https:\/\/unreasonablegroup.com\/articles\/wp-content\/uploads\/2016\/03\/zambia-graph-1140x641.jpg 1140w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><\/p>\n<p>While this was happening, we were coming up with a new financial plan almost daily. We froze hires, cut travel and non-critical expenses, and unfortunately had to layoff a few people. It was a stressful period that tested, and ultimately strengthened, the cultural fabric of our business. We were much more fortunate than many other businesses operating in Zambia that had to close down.<\/p>\n<blockquote class=\"left\"><p>Pick the right investors who will help see you through a crisis because one day you will have one.<span id=\"tweetquote\"><a href=\"https:\/\/twitter.com\/intent\/tweet?url=http:\/\/bit.ly\/1TRoqt5&amp;via=unreasonable&amp;text=&quot;Pick the right investors who'll help see you through a crisis\u2014one day you'll have one&quot; @ZoonaMike\"><i class=\"fa fa-twitter\"><\/i> Tweet This Quote<\/a><\/span><\/p><\/blockquote>\n<p>It was in the heart of this currency storm that I made the phone call that all entrepreneurs dread. After a late Saturday night reworking yet another financial plan, I called my board members from our two lead Series A investment funds on a Sunday morning to ask for more money, in case the situation worsened. There were rumors the Kwacha could run to 20:1 before it stabilized, and we wanted to be sure we could weather the worst of the storm. When they asked me, \u201cHow much?\u201d I swallowed hard and said, \u201cOne million dollars.\u201d<\/p>\n<p>What happened next taught me the extremely important lesson of picking the right investors. After a few more questions, they both immediately said, \u201cDon\u2019t worry, we\u2019re on it.\u201d By the end of the week, they came back saying they had mutually agreed to give us $2 million USD\u2013twice as much as I had asked for\u2013so we would have enough runway to keep growing as the currency crisis played out. They also suggested we structure it as a simple <a href=\"https:\/\/www.ycombinator.com\/documents\/\" target=\"_blank\">SAFE (Start-Up Advance for Future Equity)<\/a> agreement, so they wouldn\u2019t have to set a valuation that would disadvantage the company if we wanted to raise future equity. The cash was in our bank account within 6 weeks.<\/p>\n<p>Our investors didn\u2019t have to act like this. They could have said no, which would have left us with no choice but to downsize. They could have forced us to accept punitive terms given the company\u2019s dire situation. Instead, they merely said, \u201cHow can we help?\u201d as only true partners would. It was great to reaffirm that Zoona has true investment partners.<\/p>\n<blockquote class=\"right\"><p>Invest time in communicating and building real relationships with your investors.<span id=\"tweetquote\"><a href=\"https:\/\/twitter.com\/intent\/tweet?url=http:\/\/bit.ly\/1TRoqt5&amp;via=unreasonable&amp;text=&quot;Invest time in communicating and building real relationships with your investors&quot; @ZoonaMike\"><i class=\"fa fa-twitter\"><\/i> Tweet This Quote<\/a><\/span><\/p><\/blockquote>\n<p>My message to all entrepreneurs raising money is this: pick the right investors who will help see you through a crisis because one day you will have one. Make sure they have deep enough pockets to follow on when you need them to and that they can move quickly. Once they are in your business, invest time in communicating and building real relationships with them. This is easier said than done when you\u2019re only thinking about getting the cash in the bank, but you won\u2019t regret the extra time you spend finding and cultivating the right partners.<\/p>\n<p>As for Zoona, we are now doing great. Despite the currency crisis, we grew 40% in the last quarter of 2015 and reached 1.5 million active consumers. We\u2019re more focused than ever, and all of the true \u201cA-players\u201d in our business stepped up when we needed them. We continue to invest in Zambia and our expansion plans are back on the table. Even the Kwacha came back slightly and seems to have stabilized for the time being around 11.5:1. Most importantly, we learned so much from this experience and are a better team and business because of it.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A message to all entrepreneurs raising money\u2014make sure you pick the right investors who will help see you through a crisis because one day you&#8217;ll have one.<\/p>\n","protected":false},"author":153,"featured_media":28070,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","footnotes":"","_links_to":"","_links_to_target":""},"categories":[476,1560,403,1514],"tags":[364,185,2784,2782,2489,1758,2435,2259,2783,2260],"class_list":["post-28057","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-article","category-economy","category-invest","category-relationships","tag-china","tag-communication","tag-crisis","tag-currency","tag-currency-devaluation","tag-investors","tag-markets","tag-mike-quinn","tag-zambia","tag-zoona"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.8 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>This Crisis Shows Why It\u2019s Critical to Pick the Right Investors<\/title>\n<meta name=\"description\" content=\"A message to all entrepreneurs raising 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