Funding Options To Raise Capital For Your Start-up
Congratulations! You have a business idea. Next step; you need capital to get it running. Starting and running a new business is not always easy. It may require a lot of money to grow and scale. What options are available to a start-up founder? Below are options you may want to consider.
1. Bootstrap The Business
This option is best for internet-based businesses or other enterprises and can be done with minimal financial resources. The word bootstrap implies using your personal resources and ingenuity to make your business work. If you can finance the growth of your business on your own without applying for loans or looking for shareholders, this is definitely a preferred option. However, you must take control of the business and minimize your liabilities. A lot of successful businesses were bootstrapped from day one. So, it’s doable.
2. Friends and Family
Apart from your personal resources, sourcing for funds from friends and family is the next best thing. These are the people closest to you and know you best. They’ve probably seen you labour over your start-up day and night, so they know how important it is to you. Someone once said if you can’t convince your family and friends to invest in your start-up, forget about external investors. This may not always be true, but it is noteworthy. Some investors actually look to see if family and friends have stepped forward to support your business and may ask questions if they have not.
3. Small Business Grants
There are programs that look to support entrepreneurship development across the continent. A very popular one is the Tony Elumelu Entrepreneurship Program (TEEP). There are several others. Do your research by networking, looking for funders online, sourcing information on what funders look out for and applying to the ones that best fit your start-up.
4. Incubators and Accelerators
There are over 300 incubators and accelerators in Africa. The past four years have seen a significant increase in the number. A lot of them are located in major capital cities like Lagos, Nairobi, Cairo and all across South Africa. Some are government funded, others are affiliated to private organizations while some others have more independent status. They often offer intense programs combined with physical working space, some starting capital and mentorship.
5. Angel Investors
For those looking for $10,000 to $250,000, it makes sense to reach out to angel networks. Angel investors are affluent individuals who provide capital for start-ups, usually in exchange for convertible debt or ownership equity. Angel Networks in Africa began consolidations with the formation of African Business Angel Network (ABAN), an association founded to support the development of early stage investor networks across the continent. Angel Investors come in all various sizes. As a start-up, you will have to do considerable research to find the person that best fits your business.
6. Venture Capitalists
This is the biggest of them all. Venture Capitalists (VCs) usually invest millions of dollars in start-ups. Depending on their policy, Venture Capitalists can support start-up growth from seed to later stages. However, for VCs to take you seriously they will be looking for advanced prototypes or working products. Nowadays, they even prefer to see traction and revenue. This tells them your business model is sound and your product offering is validated. Venture Capital is relevant when start-ups are looking to scale their operations. EchoVC and Omidyar Network are just some of the VCs that have repeatedly invested in African start-ups.
7. Loans and Credit
A lot of start-up veterans speak strongly against bank loans but if you’re an industry player or you have experience getting loans from banks, you will know it is a great source of funds. If your business already generates revenue and is looking for working capital, it makes sense to start talking to local banks and other small business financiers. There are even government-backed schemes targeting SMEs with favourable interest rates.