Financing an Isp

[Mal Hannes]

Hi everybody

I Have not been active here for a while but would like some opinions.

We have an ISP with all relevant licenses and we have peered with most major network operators.

This started slow but is now growing fast.

The positive of an ISP is it is not easy to enter the market and once you sign up a customer they stay loyal as long as pricing and service are good.

The challenge with ISP's is that you have to fund the installation and routers, that people want for free, and there is quite a long payback period. Obviously, there is a cancelation fee if people cancel early to safeguard your investment.

So our growth is now costing more than the capital we can generate from other endeavors.

I am here to ask how would you finance something like this?

So if I was looking for financing, attached to the client base, would it be possible? What interest rate and what payback period would typically be required.

The other option would be to sell shares but this is not our first option. Right now the profit is not great because this is a numbers game but we are growing at more than 20% per month. So current valuation would be on 1000 current customers and not on the possible growth of 5000 customers in the next 12 months.

I do not want to give detail on a forum but would love some input. Hoping there is financing specialists on here.

[Mal Hannes]

Hi everybody

I Have not been active here for a while but would like some opinions.

We have an ISP with all relevant licenses and we have peered with most major network operators.

This started slow but is now growing fast.

The positive of an ISP is it is not easy to enter the market and once you sign up a customer they stay loyal as long as pricing and service are good.

The challenge with ISP's is that you have to fund the installation and routers, that people want for free, and there is quite a long payback period. Obviously, there is a cancelation fee if people cancel early to safeguard your investment.

So our growth is now costing more than the capital we can generate from other endeavors.

I am here to ask how would you finance something like this?

So if I was looking for financing, attached to the client base, would it be possible? What interest rate and what payback period would typically be required.

The other option would be to sell shares but this is not our first option. Right now the profit is not great because this is a numbers game but we are growing at more than 20% per month. So current valuation would be on 1000 current customers and not on the possible growth of 5000 customers in the next 12 months.

I do not want to give detail on a forum but would love some input. Hoping there is financing specialists on here.

I was really hoping for some comments or questions.

[Dave A]

How long does your business plan and cashflow plan indicate it will take to achieve a positive cashflow in the business at the current growth rate of 20% per month?

[Mal Hannes]

How long does your business plan and cashflow plan indicate it will take to achieve a positive cashflow in the business at the current growth rate of 20% per month?

Dave yes it will be cash positive the moment you stop pushing the growth. within 6 months you can change to self-financed growth but that would then be slower growth.
It is already on break even if you exclude the cost of growth.

Currently, due to the fast fibre roll out in the country, there is a window of opportunity for growth that we do not want to miss out on.

Thank you for your response.

[Blurock]

One of the biggest mistakes that an entrepreneur can make in a new business is to grow too fast. Growth requires more investment in infrastructure and manpower, which requires more management and control and eventually ties you up so much that you cannot concentrate on your innovation.
There is no easy answer as all businesses and industries are different and have their own issues.

Seeking finance from institutions like banks and IDC or DTA is a lost cause. Banks generally do not understand business and they are certainly not venture capitalists. Banks are there to serve salaried people who can pay by debit order. They may give you an overdraft if you can provide the security, but they will never fund you on the potential of the business.

As selling shares is not an option, sometimes collaboration with a similar service provider in the same industry may be a solution. In my experience I have seen people in different industries collaborate to the benefit of both parties as they could then share information to have a greater collective footprint. E.g. Company X is in Gauteng. They build a good reputation and get calls from Cape Town. It is not worth their while to travel to CT to do the business, so they refer the business to their trusted associate in CT and vice versa. Comp A has a good product, but a small range that does not cover their customers needs. By collaborating with B who can use A's product and also provide the missing links to service the customer, both companies gain and manage to retain the customer. In this way you can expand nationally and not be restricted by your own resources.

A mistake we all make is to want to keep everything for ourselves. I would rather have 10% of Microsoft than have 100% of my home based business.