Tips For Raising Capital In Your First Year Of Business
Raising capital is key to starting, running, and scaling your business. Most businesses fail in their first year simply because they aren’t able to raise sufficient capital. When a business has sufficient capital, it can grow into a giant in the industry.
It is no secret that raising capital is not so easy, especially for businesses in their first year. Not to worry, this post is just what you need. We will share a few tips to help you raise capital in your first year.
How To Raise Capital For Your Business
According to researchers, several startups capitulate in their first year because of several reasons. Of all the reasons, the most common is “capital.” This just shows how important a requirement capital is to the thriving of a business.
Here are some tips to help businesses raise capital in the first year:
Bootstrapping is just a complex business term for building a business on personal savings. Most times, it may involve the cash from the business’ first sales as well. As such, a bootstrap business is one where the entrepreneur raises the business without cash from external sources.
Bootstrapping is the same as self-funding. This works for individuals who have been nursing the idea for a long period and have saved up over time. It could also work if you are earning a lot and want to start a small side hustle.
One of the biggest advantages of bootstrapping is that you have no obstacles to funds. As long as you already have the funds saved up, you only need to withdraw from your bank to grow your business.
Where the challenge lies is that you can hardly start a huge business through bootstrapping. As we mentioned above, you can only start a small side hustle this way. If you are looking to start a large business, you may want to try out any other tips on this list.
One of the most common ways of raising capital in the twenty-first century is through angel investors. Who are angel investors? They are individuals with huge net worth that provide financial support to entrepreneurs and startups. Usually, they do this in exchange for equity in the business.
Many small businesses don’t know about angel investors. The ones that do scarcely know where to find them or are scared of losing their business ideas in the end. These investors come together sometimes to scrutinise proposals. This helps them to select the businesses that they will support.
Before you can approach an angel investor, you should have certain things in place. Some of them include:
– A business plan.
– Registered business name.
– Clarity of business terms.
– Legal protection for your business.
This brings us to how to find angel investors for your business. There are several places to find angel investors. Some of them include:
– Friends and family.
– Social and religious organisations.
– Social media forums.
– Angel networks such as Nigeria Angel Investors.
One of the major benefits of angel investors is that asides from funding, they also offer mentorship. When starting a business, you need a lot of mentorships to grow. This will help you to avoid making silly business mistakes.
Business Accelerators and Incubators
One good way that SMEs in Africa can raise capital is through business accelerators and incubators. Both are quite different, even though the differences are slight. A business accelerator is an organisation that offers funding and support services to startups. To do this, they enrol startups in mentorship programs, provide office space, and a lot more. The funding that accelerators offer is usually in return for funding.
Onn the other hand, business incubators help startups develop by providing resources and several services. They collaborate or partner with different kinds of organisations, including government bodies, investment ventures, and economic development organisations, to mention a few.
One of the chief differences between both is that accelerators help fast-track businesses while incubators nurture them. Regardless, raising capital from such organisations is a huge possibility as an SME in Africa. Asides from the funding you will receive, you will also make connections to other startups.
Do you know that you can raise capital for your business in the first year through government programs? The Federal Government of Nigeria, for example, has several programs that allow businesses to raise funds. Most of these programs are under the jurisdiction of the Central Bank of Nigeria. However, several bodies handle these programs, such as NIRSAL, BOA, AGSMEIS, and DBN.
Some of these loans require your business to be registered. Most importantly, you should have a detailed business plan. After scrutiny of your business plan, the bodies will decide whether or not you qualify for funding. There are several benefits of government programs. One of them is that you can access a substantial amount of money. The only challenge is that the process can be slow and tiring.
This is one of the most popular ways of raising capital for SMEs in Africa. Banks provide loans to businesses that can provide a solid business plan. There must be a payment structure and profit forecast to accompany the plan.
We put this last on the list because for most startups in the first year; this should be the last resort. These loans come with a high “collateral loss” risk. But looking on the bright side, banks can provide access to a huge amount of capital. If you are meticulous enough and have a good working plan, you can use this as a stepping stone.
Raising capital in your first year shouldn’t be a problem after reading this post. Do you know other ways to raise capital in your first year as an SME in Africa? Share them with us in the comments section.