As a business owner, your purpose of running your business, aside the creation of value is to make profit. In this light also, every business needs money and other capital resources to stay active and also grow. Startups have to deal with starting costs, and also business running costs for the growth and development of the business. Deciding to take on some kind of debt is quite common, but financing options depends on what kind of business you have, how long the business has been in existence, the stage of the business, general performance of the business and market opportunities etc.
FUNDING YOUR STARTUP IN NIGERIA
The process of looking for money must match the needs of your business. Where you look for money, and how you look for money, depends on your business and the kind of money you need. At this point, we will explore different types of investment and funding options. As a start-up founder or entrepreneur, this should help you determine which funding options are viable for your business and which investment options you should pursue first.
Venture Capital: The business of venture capital is frequently misunderstood. Many startup founders complain about venture capital companies failing to invest in new or risky ventures. People talk about venture capitalists as sharks, because of their supposedly predatory business practices, or sheep, because they supposedly think like a flock, all wanting the same kinds of deals. This is not the case. The people we call venture capitalists are business people who are charged with investing other people’s money. They have a professional responsibility to reduce risk as much as possible. Venture capitalists ordinarily should not take more risk than is absolutely necessary to produce the return ratios that the sources of their capital ask of them.Venture capitalist should not be thought of as a source of funding for just any type of business but for very few exceptional startup businesses. They cannot afford to invest in startups unless there is a combination of product opportunity, market opportunity, and proven management.
Venture capitalists look for businesses that they believe could produce a huge increase in business value within just a few years. They know that most of these high-risk ventures fail, so the winners have to win big enough to pay for all the losers.
Typically, they focus on newer products and markets that can reasonably project increasing sales by huge multiples over a short period of time. They try to work only with proven management teams who have dealt with successful startups in the past.
Angel Investment: This is much more common than venture capital and usually is far more available to startups and at earlier growth stages too. Although angel investment is a lot like venture capital (and is often confused with it), there are important distinctions. First, angel investors are groups or individuals who invest their own money. Second, angel investors tend to invest in businesses at earlier stages of growth, while venture capitalist typically waits until after a few years of growth and after startups have more history.
Your next question may be on how to find the “business angels” that might want to invest in your business. Some government agencies, business development centers, business incubators, and similar organizations will be tied into the investment communities in your area.
Businesses that land venture capital typically do so as they grow and mature after having started with angel investment first. Like venture capitalists, angel investors normally focus on high-growth companies at early stages of development..
There are also online platforms where you can post about your business to reach out to angel investors. Some of the platforms would be listed in the later part of this guide.
Commercial Lenders: Banks are even less likely than venture capitalists to invest in, or loan money to, startup businesses. They are, however, the most likely source of financing for established small businesses. Startup entrepreneurs and small business owners are too quick to criticize banks and financial institutions for failing to finance new businesses. Banks are not supposed to invest in businesses and are strictly limited in this respect by federal banking laws.
The government prevents banks from investing in businesses because society, in general, does not want banks taking savings from depositors and investing in risky business ventures; obviously when (and if) those business ventures fail, bank depositors’ money is at risk.
Bank regulators want banks to keep money safe, in very conservative loans backed by solid collateral. Startup businesses are not safe enough for bank regulators and they do not have enough collateral. A business that has been around for a few years generates enough stability and assets to serve as collateral. Banks commonly make loans to small businesses backed by the business inventory or accounts receivable. Normally there are formulas that determine how much can be loaned, depending on how much is in inventory and in accounts receivable.
Funding from Friends and Family: Most businesses are always almost funded at the early stage from the personal savings of the business owners. Also very importantly, funds can also be gotten from close friends and family of the business owners. As a business owner, you should understand that at the early stage of your startup it may be easier to convince the close people around you, than convincing a venture capitalist or an angel investor or even a bank to get funds. Especially as most of these persons look out for not just prospects but also the productivity of your business before putting in their money. Your friends and family may still look out for prospects and the productivity of your business, but then because of the existing relationship between you and them, trust can easily be built.
What should you do?
Whatever method you choose to adopt, always understand that there are risks involved and you have to exercise due diligence and also be committed to building your business. Also understand that get funding may take a while and what you do in the period of the wait may determine whether or not your business would ever get funding or even get to a stage where you make profits off it. You must therefore keep on working and building without letting the lack of funds limit you too much because if ever new business owners had waited to access funding from venture capitalists before actually starting up, there would not be so much successful businesses as we see today.
