Below are 10 resourceful sources of startup financing. Did you recently launch a startup? Are you looking to find funding for your startup? Funding your startup is probably the most challenging thing most entrepreneurs face.
An average of 50% of new businesses cannot cross the five-year mark. There could be other reasons for this, but funding is majorly the key factor.
Every business, especially startups, needs financing to thrive. The biggest question on every startup founder’s mind is; ‘Where do I get funds to run a smooth operation?’
Read on to find the answer to your question.
IMPORTANT TAKEAWAYS
- Business relationships with family members and/or friends shouldn’t be treated carelessly. Loss of money can affect personal relationships with loved ones.
- Have a solid business plan before seeking financial help
- An angel investor that shares the same interest as your company should be your target if you are interested in that type of funding
- Before publicizing your business, weigh the pros and cons. If you are willing and ready to take the risk, go for it.
- Lastly, believe in yourself. You can do this.
List of 10 Resourceful sources of Startup Financing
The following is a list of 10 resourceful sources of startup financing in Nigeria and other parts of the world. They include:
- The Founders
- Family and friends
- Angel Investors
- Small Business loans
- Venture Capitalist
- Crowdfunding
- Incubators
- Series Funding
- Grants/Subsidies
- Initial Public Offering
1. The Founders
No one has your best interest at heart like you do. Do you have some savings? Did you just receive a bonus? Why not throw that money into your own company? As a startup founder, your first investor should be you!
Either with cash or collateral on your assets.
Investment is not all about cash or checks, co-founders can invest their time or skills. If a founder can create attractive fliers, create awareness video ads or make technology licenses available without pay, that is a good form of investment. Temporarily not paying yourself any salary is also an investment.
This type of financing is usually seen when a startup has just been founded. When a startup has just been set up, in most cases, no external funding is available, yet there are some startup bills to cover. An advantage attached to this form of financing is that it can be perceived as positive by an external financer. It proves to external investors that you are in for a long-term commitment and that you are ready to take risks. Another person wouldn’t be dumb enough to risk investing in your company if you have not done so yourself.
Read- What owning a business has done for me and/or what it can do for you!
2. Family and Friends
Raising funds among family and friends is another way to finance your startup. These are people who are close to you and mainly invest because they believe in your dreams or because of a percentage of shares they get from the company.
Keep in mind that they are not professional investors, so you should not expect a professional critic/assessment from them. This is one of the cheapest and safest types of funding because your family and friends may not expect to acquire a large portion of your company.
If you have very generous friends, they could even gift you money as a way of support. This is also known as ‘Love money’. However, a business relationship with family and friends shouldn’t be taken lightly. They may be willing to invest more if they see that you and your business are thriving.
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3. Angel investors
Angel investors are part of the 10 resourceful sources of startup financing we have. They are experienced wealthy individuals who back startups with their money. They invest in new companies to help other entrepreneurs succeed in their businesses. You need to know insightful ways to attract angel investors to your business.
Angels offer ‘smart capital’, connections, networking opportunities, and managing knowledge and experience, not just money. In exchange for the risk they undertake, they acquire the right to supervise the company’s management activities. They often take up positions as part of board members.
Try to find Angel investors that share the same interest as your company.
Learn where business startups can invest their money in Nigeria.
4. Small business loans
Although banks tend to invest in small to medium businesses, or companies with lower risk profiles, than startups, and also when companies can offer collateral, this does not mean that banks do not finance entrepreneurs.
You, as a startup, are at an advantage if you have collateral. Or maybe you are looking for stock or capital financing to cover investments in machines or buildings, then a bank is a good option to consider.
It is important to know that bankers are looking for businesses with good track records and excellent credit.
Ensure that your startup doesn’t just have a good idea, but also a solid business plan.
An exciting advantage of business loans is that you don’t have to give away a part of your company in terms of equity, so in the long run, it can turn out to be a cheaper form of financing.
Read- 5 sources of business grants in Nigeria for startups.
5. Venture Capitalist
Before you consider this form of funding, keep in mind that venture capitalists are interested in technology-driven startups, businesses aiming to succeed in information technology, communications, and biotechnology.
Private equity is the general name for professional investment firms that invest in private companies. Venture capitalists focus specifically on risky investments at an early stage of a company. Venture capital is suitable for startups that have passed the seed stage and are looking for Series A and B funding.
This type of funding helps them to grow faster than when they grow organically. A venture capitalist takes an equity position in your company in exchange for its investment. They help a company carry out a promising but riskier project.
Learn how to write a business proposal for investment as a startup.
6. Crowdfunding
Crowdfunding is one of the 10 resourceful sources of startup financing. It is a new method of funding your business. Usually, crowdfunding is done online, where entrepreneurs offer investment opportunities and a large group of interested people invest small amounts to meet the entrepreneurs’ needs.
Read- Roles of small scale businesses in Nigeria.
7. Incubators
An accelerator is another name for a Business Incubator. It is an organization whose aim is to help aspiring businesses take off. Incubators are organized and funded by big companies that want to help build up business startups.
A lot of incubators exist, so ensure to research and find out more about local and international incubators if you are interested in this type of funding.
This type of funding is ideal for any early-stage business. Businesses with an already in motion idea will get the most of it, but early-stage startups can gain recognition from the right incubator.
Read- World bank Grant for small businesses in Nigeria.
8. Series Funding
Many startups may go through several funding rounds in which they seek various sources of capital. Fundraising rounds are divided into Series A, Series B, and Series C, each matching the initial stage of the company.
Money is typically swapped for firm equity in every funding round, implying that investors expect to profit on their investment.
If you are willing to give up a portion of your firm in exchange for money and have a sound business strategy, you might be ready for Series A.
Learn the 10 practical high paying side hustles to start in Nigeria.
9. Grants/Subsidies:
There are numerous tax/financial schemes and subsidies available. Subsidies and Grants are often designed by the government to encourage entrepreneurship, innovation/R&D, or economic growth in a certain geographic area. That is why each region and each country has its unique set of subsidies.
Qualifying for grants can be quite tasking, owing to the strong competition and criteria, and awarding grants is often constricted. Criteria for qualifying for a grant vary depending on the granter. For example, a technology grant may require you to come up with 40% of the total cost.
In General, when applying for a grant, you will need to provide the following :
- A detailed project report
- Explanation of the benefits that come with your project
- Detailed work plan with costs
- Details of important or related work experience and background of key founders.
- Completed Application form.
The following criteria will be used by the majority of reviewers to evaluate your proposal:
- Significance
- Innovation
- Evaluation of competence
- Reason for the grant.
Below are some of the issues candidates face when applying for grants.
- The study/work is irrelevant
- Ineligible geographical placement
- Failure to explain how important or useful their ideas are
- The plan lacks a compelling rationale
- The research strategy is disjointed
- There is an excessive quantity of work.
10. Initial Public Offering:
The initial public offering (IPO) is the holy grail of funding. An IPO is a company’s first public listing., which implies that it is the first time it sells its stock to the general public. This means that almost anyone in the world (individuals and organizational investors) can gain shares at a set price and invest in the firm.
A corporation is private before it goes public, which means it usually has a few early-stage or growth capital investors. Consider the founders, angel investors, and venture capital firms.
A company must be able to show years of strong growth for an IPO to be successful. There are various ways to define growth. This can be revenue or profit, but it can also be the number of clients or active users.
A company also has to exhibit transparency and confidence that growth will continue in future years since it has to win the heart of the public and convince them that the value of the shares they buy during the IPO will rise in the future so that they can make profits from their investments.
The initial public offering can turn out to be attractive for investors that already have shares in the company before the IPO.
IPO is a very costly process and requires publicising many reports to the public, imposed by strict government rules.
Conclusion
As an entrepreneur, you should always be on the lookout for financial sources and seek funding from whatever source you can think of, whether it’s a typical means like a bank loan or an unconventional finance source like consumers. You may have discovered after reading this post that raising funds for your firm is not as difficult as many young entrepreneurs believe.
All you have to do now is present your business idea to relevant individuals, persuade them that your firm has the potential to be successful, and gain your money.
