Practical Ways Of Financing Your New Business Ideas/Startup
In fact, most people say it’s hard – almost impossible – for entrepreneurs to raise capital on the continent, especially if you’re a startup. But, in most cases, “lack of capital” is not the problem. The real problem is “lack of awareness.”
Below are some practical ways of financing your new business idea.
Bootstrapping
When first getting started, many entrepreneurs use “bootstrapping,” which means financing your company by scraping together any personal funds you can find. This typically includes your savings account and any home equity lines you may have.
In many cases, using the money you have instead of borrowing or raising is a great approach—in fact, some entrepreneurs continue to bootstrap until their business is profitable. This can be beneficial because it means you won’t have extensive loans and monthly payments that bog you down, especially if you run into snags along the way.
Pitch Your Business Idea To Angel Investors
If you have a tech start-up, you’ll probably eventually need more capital to really get going—to hire people or get office space, for example—than bootstrapping and crowd-funding will afford you. You’ll likely need to reach out to outside investors. A good place to start is angel investors, usually established business professionals with high net worths who are looking to invest in promising companies.
Typically, an angel will invest anywhere from N500,000 to a few million Naira. To be able to get an angel investor to invest in your business, you need to have a good business plan and be enthusiastic when pitching your business idea and drive to the investors.
Related post: Email address list of high networth individuals in Nigeria for marketing purposes
Small Business Grants
Grants are non-repayable funds or products disbursed or gifted by one party (grant makers), often a government department, corporation, foundation or trust, to a recipient, often (but not always) a nonprofit entity, educational institution, business or an individual.
Examples of some organizations providing funding for startups include: Investment AB Kinnevik, African Women’s Development Fund(AWDF), Tony Elumelu Entrepreneurship Programme (TEEP), the Africa’s Young Entrepreneurs Empowerment Nigeria (AYEEN), the Dangote Foundation, Bank of Industry (BOI) and a host of many others. For many of these organizations you have to show a strong desire to succeed, a passion for entrepreneurship and a willingness to help others.
Raise Money From Your Family And Friends
Hitting up family and friends is the most common way to finance a start-up. But when you turn loved ones into creditors, you're risking their financial future and jeopardizing important personal relationships. A classic mistake is approaching friends and family before a formal business plan is even in place.
To avoid it, you should supply formal financial projections, as well as an evidence-based assessment of when your loved ones will see their money again. This should reduce the likelihood of unpleasant surprises. It also lets your investors know you take their money seriously.
You also need to seriously consider how the arrangement will be structured. Are you offering equity? Or will this be a loan? Perhaps most importantly, you need to emphasize the risk involved. Offer up a strong business plan, but remind them there is a good chance their money will be lost.
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