Raising Capital for Your Startup

Entrepreneur, startup, startup capital, funding
Raising startup capital is easier said than done, an experience have thought me that. Many startups never prepare fully when it comes to convincing investors. They always so engross in their idea so much that they believe anybody who hear about it will be convince immediately until they meet investor or panel of judges in a contest who drill them series of questions that almost set their idea ablaze.

As aspiring or emerging entrepreneur, you would have read several times the research that confirms it that 95% of startup closes shop in the first five years and out of the remaining 5%, another 95% close shop in the next 5 years. Meaning only 1% startup survives in the period of 10 year. Can you believe that?

If you are like me anytime you read that, you will ask; what are the causes?  A good research to find answer to that question will be an opportunity to prepare your business for the capital for expansion. I wish I could talk about it here, but to make it comprehensive, let’s live that for another day. Meanwhile you can read “Do you have a Vision or Illusion?” to have a glimpse into it.

While capital might not be the ultimate requirement for a successful business, many businesses close up due to lack of fund. In respect to the research above, if a business could manage to survive the first five (5) years without raising capital and eventually close up after that, in most cases lack of fund is the major reason.

As an entrepreneur, you should be aware that behind every success comes the process. Every successful business will need capital one time or the other, the reason you should do the due diligence from the start to position your business if you intend to raise capital.

One more thing before you concludes; there are many things to consider when raising startup capital. Don’t be carried away with the capital, you should pay attention to as well Look Beyond Startup Capital. But if you’ve prepare ahead, there are more option to raise startup capital than you may be aware.

Sources of Startup Capital

1.  Bootstrap for the Future: The first option to raise startup capital for your business is personal savings and grant or loan from family and friend. Apart from easy access to such funding, it’s an opportunity to show your commitment. This is one way to prepare your business for funding. Having a track record will enhance investors view.

It is understandably that not all businesses that can be bootstrap, Bootstrapping is only good for businesses that require starting small. There are businesses that require huge capital from the beginning.

Why bootstrapping is good, you should pay attention to how long your should bootstrap without loosing the market to competitor.

2. Crowdfunding: Crowdfunding is new and made possible with the internet technology. It’s an opportunity to raise startup capital from everyday people around the globe as grants, loan, investment, or pre-order. You could check on the following if you will consider raising your startup capital through this option; Indiegogo, Kickstarter, GoFundMe, Launchgood among others.

Apart from raising the capital, crowdfunding is a marketing opportunity and as well present your business to Angel Investors or Venture Capitalist. But if you are not interested in spending money in the course of raising startup capital, this option is not good for you because you have to get the words out by advertising on their website, social media, youtube etc.

3.  Angel Investment: They are individuals or group with interest in providing startup capital and mentoring. There are many big businesses that have benefited through this capital channel. Facebook is one of such business as read in the book The Accidental Billionaire by Ben Mezrich. The only challenge of raising capital from angel investors is that, what they will offer you might be below your required sum unlike venture capitalist. If you will give this source of capital a try, check VC4A, The Lagos Angel Network, Africa Angels Network , eVA Fund, CCHub and many more.

4.    Venture Capital: If you are in need of large sum of capital, Venture Capital is the best bet. They are professionally managed funds ready to provide capital for equity and exit when there is an IPO or an acquisition. Aside from providing capital, they also provide expertise and mentorship.

A venture capital investment is more appropriate for small businesses that are beyond the startup phase and already generating revenues. But mind you Venture Capitalists often look to recover their investment within a three- to five-year time window. If you have a product that is taking longer than that, you may find it difficult to raise money from this source. Another thing that may not go too well for you is that, you may have to give up a little bit more control, so if you’re not interested in too much mentorship or compromise, this might not be your best option.

5.   Business Incubators: Business Incubators and Accelerators give consideration for early stage startups by providing shelter, tools, training, nurturing and network to businesses until the business is up and running. Most incubator and accelerator programme span through 3 to 12 months but requires time commitment from the business owners.

Other sources of startup capital includes;

  1. Grants by winning a contest
  2. Commercial or Microfinance Bank Loans
  3. Government assisted startup capital

Preparation is ahead of opportunity of raising startup capital and the amount you need is one of the determinant of the sources.

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