Entrepreneurs often have amazing business ideas, but they put them on hold for lack of capital. They assume their business will never get far off the ground unless they have major funding backing them. Figuring out how and who to raise money from will save you time and yield better results. If your idea and plan of execution are not well thought out from the beginning, no amount of money can turn it into a winner.
Do you have a great idea but very little money? Do not let that stop you. Here’s an overview of typical sources of financing your business.
When starting a business, your first investor should be yourself—either with your own cash or with collateral on your assets. This proves to investors and bankers that you have a long-term commitment to your project and that you are ready to take risks.
Friends and family
Do not be shy to approach your affluent family members and/or friends, and even well-wishers who are capable financially to help kick start your business. Often, the first check comes from a family member or a friend. Africa’s number 1 businessman, Alhaji Aliko Dangote borrowed $3,000 from his uncle to start his business. In theory it is a lot easier to close them because they already know you. Another thing is that friends and family members may not clearly understand the risk and how startups work. Take the time to educate them, and if they get it and still want in then you are all clear.
If you have a good and convincing business plan and idea, you may approach an angel investor who is willing to provide fund to financially assist your business. Angel investors are generally wealthy individuals or retired company executives who invest directly in small firms owned by others. They are often leaders in their own field who not only contribute their experience and network of contacts but also their technical and/or management knowledge. Under this option, you should note that every angel investor expects quick response to what he is investing.
The first thing to keep in mind is that venture capital is not necessarily for all entrepreneurs. Right from the start, you should be aware that venture capitalists are looking for technology-driven businesses and companies with high-growth potential in sectors such as information technology, communications and biotechnology. Venture capitalists take an equity position in the company to help it carry out a promising but higher risk project. This involves giving up some ownership or equity in your business to an external party. Venture capitalists also expect a healthy return on their investment, often generated when the business starts selling shares to the public. Be sure to look for investors who bring relevant experience and knowledge to your business.
Websites and crowdfunding platforms such as www.gofundme.com and www.kickstarter.com can help you realize your entrepreneurial ambition. Once you join the platforms, your funding need will be attended to as the platform will help you source for fund globally.