The majority of startup founders often deal with the daunting task of startup fundraising. Many need capital for operations such as product development, marketing, and talent acquisition, just to mention a few.
It is quite unfortunate that lack of financial support has become a conduit of frustration for passionate entrepreneurs who have groundbreaking ideas to improve their communities and countries.
In this article, you will discover the various fundraising avenues for startups and how to secure the funds you need.
How to Raise Capital for Your Startup
Here are 8 solid ways to raise capital for your startup;
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Bootstrapping
Bootstrapping is the use of personal savings, earnings from an existing income source, resources, or retirement funds to launch and expand your startup without relying on external help. It gives you complete control over your business.
It can be a good option if you have viable products, incur moderate expenses, and are willing to prioritize sustainable growth over rapid scaling. Although it might not sound ideal, using your savings is one of the easiest ways to start your business.
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Take a business loan
Taking a business loan as a startup business founder can be an important as well as a major stepping stone in every entrepreneur’s journey to launching a new business. While obtaining a bank loan might be a good source of funding for your start-up business, there is the problem of not getting a loan approval.
Having an excellent credit score might be a criterion, you might be asked to bring collateral or be in business for a certain period. Bank loans are repaid with interest over a specified term length.
Obtaining a bank loan, however, unlike getting funds from an equity bank allows you to maintain full ownership and control of your startup even as the business grows and becomes profitable you can be sure your earnings and decision-making authority remain with you.
Defaulting can result in penalties and damage your credit history and brand image. Loans are however viable if you have a concrete plan to generate revenue for covering your loan repayments.
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Crowdfunding
Crowdfunding is one of the most recent ways of capital raising as a startup business in Nigeria. Examples such as Elevation Lab (makers of the iPhone dock), Oculus (acquired by Facebook), Kickstarter, GoFundMe, and Indiegogo are platforms that can be used.
As a startup business that is considering launching a crowdfunding campaign, you must consider platform charge fees when setting your funding goals. Usually, these Crowdfunding platforms charge fees which cover a percentage of the funds raised and additional payment processing fees.
Crowdfunding fosters the development of a supportive community around a project, It provides an avenue for your start-up to stand out among the crowd and attract contributors, as long as you have a well-crafted campaign, and use effective marketing of products or ideas to draw contributions from a large and engaged audience.
Read also: 10 Reasons Businesses and Startups Fail in Africa
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Angel investors
Angel investors are entrepreneurs, retired businessmen, and professionals who have considerable net worth and are willing to invest in your startup business in return for equity.
They often take an active role in the startups they invest in, offering mentorship, guidance, and strategic advice. This hands-on approach helps you as a founder make informed decisions and address challenges effectively.
Angel investors usually have industry-specific knowledge and experience coupled with extensive networks in different industries and often, offer mentorship and guidance to help founders make informed decisions, connect them with other investors in the same field, and navigate challenges more effectively.
Many angel investors may expect an exit strategy within a specific timeframe, such as a sale or initial public offering (IPO), this can be quite challenging as founders have to strike a balance between building a sustainable business and the investor’s desire for a quick exit This investment type is also suitable for those seeking mentorship and connections with no qualms about giving ownership or control.
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Venture capital firms
Startup businesses often fail to meet Venture capital firms’ expectations and face disheartening rejections. However, if you can meet their milestones and performance targets, they provide more capital that helps your business scale faster and compete more effectively against established businesses.
If you are a startup business technology or innovative industry, VC firms offer more than sources of capital; they also offer mentorship and access to valuable resources and connections.
Read also: How to Start a Business as an Immigrant: Top Business Ideas.
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Grants
Grants are provided by the government, foundations, and institutions that award funds to startups. Depending on the reason of purpose and usually based on different criteria which include the startup’s industry or social impact. And, unlike other forms of startup fundraising, you don’t have to pay back the grant or give up any equity.
This program offers seed capital, training, mentorship, and networking opportunities to African entrepreneurs, including startups in Nigeria.
However, there are usually guidelines that must be followed with grants coupled with restrictions on the usage of funds. This does not place limitations on the ability of the startups to innovate and develop new products or technologies.
Another con about grant funding is that their timelines differ from other forms of funding which may span for years. In other words, grant funding is more focused and more short-term
As a startup business, you should consider grants as a funding option only if your vision aligns with the goals and focus areas of the grant-giving entity. Your project needs to meet specific criteria outlined in the document such as technological, societal, or environmental challenges
Read also: Grant Format: A Guide to Writing a Grant Proposal for Small Business Owners.
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Incubators and accelerators
As much as participating in an incubator or accelerator program can be highly demanding and even quite challenging, especially for startup founders who have to balance these programs with their day-to-day operations, it provides an environment where founders can build their ideas.
Incubators are organizations that provide resources and mentorship to startups until they can establish a sustainable foundation. Unlike Incubators, Accelerators are time-limited and more intensive.
For example, Startup Reactor is an example of a startup accelerator program in Egypt that offers a 6-month program with training, hands-on support, and mentorship for startups
Incubators and accelerators, with their extensive networks of potential investors, including angel investors, venture capitalists, and corporate partners, can increase the likelihood of securing funding.
The number of startups participating in these programs sometimes can be high and this would oftentimes lead to a reduction of personalised attention and resources that each startup receives. Startup businesses should choose incubators as they start to receive significant guidance and resources during the early stages of their venture.
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Personal contacts
Mixing family and business is usually not advised for anyone who wants to start a business or is in business, however, if your start-up business is not highly capital-intensive, family and friends might be your best bet.
Family and friends financing is an informal startup fundraising method where you seek financial support from close family members, friends, or acquaintances who believe in your business idea and are willing to invest or lend money to help you get started.
One of the perks to having family members and friends funding and support is that they can provide a ready capital to execute urgent business decisions faster when compared to traditional investors
Family and friends, unlike traditional investors who are exposed to and understand how your business or industry works might have unrealistic expectations and feel entitled when you start to make profit.
Conclusion
Navigating the financial uncertainty of a new startup is a challenging yet transformative journey, you have to be ready to go all out to get the necessary funding you need. Considering the above-mentioned options gives you an insight into what source of funding you should seek and how it affects your business. Wishing you the very best!
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