Without funds, a brilliant business idea may remain but a wish. A well detailed business plan without funds will remain the name it goes by – a business plan – nothing more. So, how can you raise money to execute your brilliant business plans? How can you give life to your business idea? What are the fund raising alternatives available to budding business owners and those that are already in business? It doesn’t matter if yours is a startup or an existing business. Here is how you can get the funds you need:
1. Personal Funds
In business lingo this is also called personal credit. Personal credit is simply funding and running your business with your own money. It is taking everything that has to do with finance up close and personal.
This sure has its advantages. It gives you the freedom to do whatever you want, whenever and however you want it. You do not have to consult partners, angels, venture capitalists or any other person or party before making or taking business decisions. In your world, they simply do not exist.
For marketing, you prefer online adverts to television campaigns and radio jingles? Then, that is final. No questions asked. You may however have to bootstrap. You may also have to be a marketer, a PR expert, a sales manager and more all at the same time. You may have to work with a lean budget and a small team.
2. Venture Capitalists
Most people mistake Venture Capitalists or VCs, as they are fondly called, for Angel Investors. Venture Capitalists, just like angel investors, help businesses with finance. But the way they operate isn’t the same. An angel investor is usually just one person, while VCs are usually a group of persons. Angels use their personal money to fund other people’s business, while VCs don’t use their personal money.
Because of the number of people involved, it takes a longer time to get money from VCs. Because it isn’t their money, they have to go through several processes, carefully examine your pitch and business, and also view things from different vantage points before any dime will be released to you. And most times, they do not fund startups. They prefer to inject available funds into businesses whose viability and profitability have been established over time. They finance startups if and only if it has very high growth potentials.
Another thing worthy of mention is that VCs usually have more money at their disposal. They pool money from several sources, so it is needless to explain why the money they have can’t be compared to what Angels have. The downside of this however is that after they have funded your business, they get involved in every of your decision making process. They automatically get to seat in every board meeting and if care is not taken, they can take over the driver seat of your business’ locomotive.
3. Angel Investors
No, the angel part has nothing to do with the winged, celestial bodies you’ve seen in movies or heard about. An angel investor or angel is a wealthy person who chooses to use hisher money to fund another person’s business.
When two or more angel investors come together to fund other peoples businesses, such an alliance makes them angels or angel investors. And the good thing is that they don’t just fund businesses, they offer advice and pull strings that make the business of whoever they are helping flourish faster.
It is commonplace to find them reach out to their contacts, just to ensure that things get done faster. What do angels stand to gain in the end? And what is the difference between a venture capitalists and a group of investors?
What they stand to gain depends on their agreement with the business owner they are involved with. They may choose to own part of the business or recoup their money over time, with some interest of course.
On the difference between venture capitalists and a group of angels, it is quite much. To mention a few; angels may not get involved in all decision making processes of business, but VCs, as a matter of necessity get involved in all. Angels release funds faster, while VCs, because of their size and their procedures, take more time to release funds.
4. Friends and Family
If you do not have personal funds or credit, chances are you will at least have a family you can talk into helping you with funds or a couple of friends you can bank on. Whether family or friends, the key takeaway is getting funds from people who are very close to you. Some of these people love you so much and know you like the palm of their hands. They know your strengths and your weaknesses. They know what you can do and what you can’t do. And the last thing this people want to see you do is struggle for funds or whatever reason.
Unlike with VCs and angels, you wouldn’t have to go through bouts of explanations or submit any pitch to them. But this also has its pros and cons. They may easily help you out, but if they don’t get their money back as at when due, your relationship with them can get severed. The major disadvantage of this option is that it can replace love and friendship with hatred and enmity.
5. Crowd Funding
Crowd funding is relatively new in Africa. It has been around for a while, but for whatever reason has remained unpopular. It is simply an avenue that allows people come together and pool money together to fund a business venture or idea. It is a process that allows entrepreneurs raise money from many donors through an online platform.
Companies like Indiegogo, Kickstarter and several others pride themselves as some of the biggest crowd funding platforms in the world. Even in Africa, companies like Jumpstart Africa, Thundafund, Next Level Africa and several others rear their respective heads up whenever crowd funding sneezes. While these funding sites may be many, it is worthy to state that not all of them have the audience or capacity to deliver on helping entrepreneurs raise money.
It is also worthy to state that crowd funding varies. While some choose to help only tech entrepreneurs or businesses that provide mobile solutions, others may choose those who are into agribusiness or any other sector. It is that diverse. Some even choose to concentrate only on businesses in specific cities, states, and countries. It therefore falls on the entrepreneur to research the several crowd funding options available, choose the one tailored to his or her needs and follow their guidelines to the letter.
6. Grants and Business Competitions
In recent years, we have seen several organizations come up with laudable initiatives – business competitions and grants – to help entrepreneurs and nip the unemployment debacle troubling Africa and the rest of the world in the bud.
This option may not be bankable, but it sure works. We have the Tony Elemelu Entrepreneurship Program (TEEP), an annual business competition that affords entrepreneurs the opportunity to be trained, mentored and funded. The program sets out to empower 10,000 entrepreneurs across Africa over a 10 – year period. During this period, it projects to create one million new jobs and add 10 billion USD in annual revenue to Africa’s economy. Wonderful, isn’t it?
There are several such opportunities. To mention a few, we have Growth Africa, Commonwealth Foundation Grants Program, TechWomen Program, Tech–I Business Plan Competition and Shell Live Wire, a program that helps graduates from Nigerian universities become entrepreneurs. With a little research and submission of applications here and there, who knows? You may get lucky!
7. Bank Loans
This, to a reasonable extent, is self explanatory. You simply approach a bank with your business idea and if you aren’t a startup, your profit and loss accounts and a few other documents.
One thing to however have at the back of your mind is that when it comes to giving out loans, banks typically don’t joke with the 5 Cs of credit. They wouldn’t joke with your Character, Capability, Collateral, Capital and Condition. As you can see, collateral is just but one of them. Your numbers and several other factors will come to play if your loan application will be successful or not.
BY: Joel Pereyi