So you have a startup idea and need capital.
Starting and running a new business is not easy. It may also requires a lot of money to grow and scale the business.
What options are available to a startup founder? Take a look below
1. Bootstrap the Business
The name, 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, this is definitely the preferred option. You keep control of the business and you minimize your liabilities.
You don’t have to deal with shareholders or anyone telling you how to run the business. You’re forced to acquire and retain customers which benefits your business immensely. If you can, this is the best way to go. 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 laboring over your startup day and night, so they know how important it is to you.
Like someone once said, if you can’t convince your family and friends to invest in your startup, forget about external investors. Many investors actually look to see that family and friends have stepped forward to support your business and ask questions if they haven’t.
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 and find the ones that best fits your startup and industry.
4. Incubators and Accelerators
There are over 300 incubators and accelerators in Africa as at the last count. The past four years have seen a significant jack up in these numbers. Majority of them are located in major city capitals like Lagos, Nairobi, Cairo and all over South Africa.
Some are government funded, others are tied to a University or receive grant funding, while many have a more independent status. They often offer intense programs combined with physical working space, some starting capital, and mentorship.
6. 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 startups, usually in exchange for convertible debt or ownership equity. Angel Networks in Africa are really beginning to consolidate 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 shapes and sizes and again you will have to do considerable research to find the person that best fits your business.
7. Venture capitalists
The big daddy of them all. Venture Capitalists usually invest millions of dollars in startups. Depending on their policy, Venture capitalists can support startup growth from seed to much later stages.
However, for VCs to take you seriously they will be looking for advanced prototype 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 startups are really looking to scale their operations. EchoVC and Omidyar Network are just some of the VCs that have repeatedly invested in African startups.
8. Loans and Credit
A lot of startup veterans speak strongly against bank loans. But if you’re an industry player, or you have experience getting loans from the banks, it’s a great source for funds.
Also, 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 favorable interest rates.