6 Smart Ways To Raise Funds To Start a New Business in Africa
Successful entrepreneurs understand that when you get the fundamentals of a business idea right, it is easier to raise funds for that business. Regardless of this though, raising money can be the toughest part of starting your own business.
The challenge of landing that capital to grow a company can be exhilarating as well as discouraging. Built into the process are certain harsh realities that can seriously damage the spirit of an entrepreneur, not least of which is the litany of “No”s you are bound to receive. Even established companies sometimes go broke while the founders are trying to raise funds for their next growth spurt.
Money is the bloodline of any business. That’s why at almost every stage of the business including its inception, entrepreneurs find themselves asking – how do I finance my idea? The long painstaking yet exciting journey from the idea to revenue-generating business needs a fuel named capital.
Entrepreneurs cannot escape this but, by knowing what they are, can at least prepare for them. Every potential fund-raising strategy for your SME would invariably involve emotional -and sometimes even financial- tolls of various kinds. Unless you have carefully thought them through and decided how to handle them ahead of time, you may end up with a poorly structured deal or the possibility of abandoning your business idea before you even begin.
Raising funds for your business isn’t impossible, but one of the best decisions a business owner can make is to get on this early enough to contribute to their financial success. When you would be required to raise funds for your business depends largely on the nature and type of the business.
Top Funding Options for Startups
Whether or not you’re just starting your entrepreneurial journey, below is a comprehensive guide that lists 6 funding options for startups that will help you raise funds for your business:
Tap Into Your Reserves First
Sometimes, the best way to raise funds for your idea is to tap into your reserves first. This includes your savings as well as the support of your loved ones. Tap into savings, home equity, or retirement accounts. It’s risky, but it isn’t necessarily fair to expect others to invest in your startup if you haven’t put some of your own “sweat” into it first. Raising capital through friends and family is a viable option for many. According to the Global Entrepreneurship Monitor, 5% of US adults have invested in a company started by someone they know.
To get this right, you can select a friend or family member with solid business skills. Alternatively, you could simply narrow your list down to friends or family who have faith that you will succeed, who understand your plans, and who are clear about the risks. Be realistic about how much money is needed. Once you’ve done that, let all parties to the loan agree on what form the funding will take.
For instance, the capital could be repaid at an agreed time or your lenders could be given equities in your company. If the money is a loan, agree to a repayment plan with a timeline clearly stated. Document every step of this because it will help you manage the loan. Then demonstrate passion and due diligence by having a sound business plan and forging ahead to win.
Sign Up Funding Partners From The Start
There’s nothing better than finding a partner, supplier, or distributor who stands to gain so much from your business that they are willing to help foot the bill from the word go. Having partners whose sole responsibilities are to fund your ideas in exchange for company shares can do much good for your business.
The quality and reliability of the solutions your business will provide in your chosen niche will be key here. Once you capture their attention with your infectious enthusiasm and promising data about your company’s potential, you nip your funding challenge in the bud.
There will always be potential early adopters who you can convince to come on board if they think you have a chance at relieving their pain. If you let them, they will provide your business with a unique perspective of what’s right and what needs to be changed to improve the value proposition of your solution to the markets you plan to serve. In the long run, it is far better to create these kinds of partnerships and work out the kinks while your business is still starting than to be suddenly confronted with the need to raise funds when you’re ready to scale.
Bootstrap and Pay As You Grow
Provided that your business isn’t operating in an industry that requires lots of startup capital, like manufacturing or transportation, you can bootstrap your idea and potentially fund your venture. Nothing is scarcer than cash when you’re starting out on a new business. Managing your resources like they are money- whether or not they are- is the best way to bootstrap your ideas.
You can share office services or rent out your equipment when not in use. You can lease out your unused office space or relocate to a business incubator. You can also save a lot of money on travel by using smart scheduling or teleconferencing. The more you bootstrap in the beginning to achieve good market validation, the easier you are going to find your path to raising funds along the way.
Get Funding From Business Incubators & Accelerators
Incubator and Accelerator programs can be sustainable ways of raising funds for your business, especially if you are new on your entrepreneurial journey. Found in almost every major city in Africa, these programs assist hundreds of startup businesses every year.
Incubators are like parents who nurture young businesses by providing them with shelter, educational tools, training and the network they need to start. Accelerators are similar but an incubator helps by nurturing a business to learn how to walk, accelerators help them learn how to run or take giant leaps to succeed.
These programs generally run for 4-6 months and require a time commitment from the business owners. Asides from securing the financial support you need as a business owner from these programs, you will also be able to make good connections with mentors, investors and other fellow startups using this platform. One such popular program open to African entrepreneurs is the Y Combinator Accelerator, brought about by the partnership Dropbox and Airbnb.
Micro Loans
Loans are core fundraising options for businesses because they usually come with fewer strings attached, shorter payment periods, and in some cases, medium to low-interest rates. Microloans come into play to help young entrepreneurs who for various reasons, do not meet the criteria for conventional bank loans.
Instead of donating to the non-profit organization, microloan organizations provide interested private individuals with the opportunity to invest in economic growth and as such are very popular in developing nations.
You would be amazed to learn that there are numerous microloan options within your city, ready to fund your business if your vision aligns with theirs. All you have to do is conduct detailed research and when you find them, dare to reach out.
Product Pre-Sales
If your business idea is primarily based on the sales of a single product, the easiest way for you to raise the money to produce that product might be to pre-sell it to your target audience. Selling your products before they launch is an often-overlooked but very effective way to raise funds for your business.
Successful companies like Apple & Samsung often do this. They start pre-orders of their products ahead of the launch to improve cash flow and prepare for consumer demand.
Asides from raising funds, pre-selling your products keep you aware that consumers are relying on you to follow through. It places your customer in the role of the investor, allowing their feedback and money to back the product. This is a personal investment because it proves that they believe in the product you’re offering. It’s a much more personal and meaningful connection. You will need to have a solid timeline in place and adhere to it. Otherwise, customers might demand their money back, which could lead to a variety of problems.
Conclusion
The most important lesson here is that despite the challenges of raising capital for your business, you still have enough options for financing your idea. So don’t get discouraged if one option doesn’t work out. By repeatedly demonstrating due diligence by being resourceful and persistent, you can raise the funds you need. Keep this up and eventually, money will no longer hold back your business. You’ll be able to expand freely as you fulfil your business dreams.
