Raising Finance for Startups

raising financeEven if you have the best business idea ever, the truth is that you’ll need enough money to get it off the ground. For entrepreneurs, this is one of the greatest challenges. Also, the way you initially go about securing funding can have a significant effect on how your company runs in the future, depending on the demands and conditions posed by investors.

Read on for some simple but realistic solutions to getting through this tough initial phase of becoming your own boss.

Bootstrapping

Essentially, “bootstrapping” is starting a business without any external funding or capital. Depending on the nature of this business, this may or may not be possible. With bootstrapping, you’ll have to keep a very cautious eye on expenses from day one. This may be stressful but it can also help foster financial discipline and a healthy attitude towards limiting spending. You won’t accrue interest on money you owe yourself, so it’s lower risk too. In situations where costs are low and return on investment is high, reinvesting your profits is a good way of paying yourself back.

Friends and family

If you aren’t able to raise the money to support your startup business on your own, your next best bet is to turn to your family and friends for assistance. People who know and believe in you will be more ready to provide you with funding than totally unknown investors. The downside, of course, is the potential for loss. If your company folds, this could significantly damage not just your finances but your relationships with your friends and family.

Crowdfunding

If you’ve got a great business idea, one possible funding solution is to turn to strangers on the internet. A few years ago, this might have sounded like an absurd suggestion. Today, companies like Thundafund, Fundable, Kickstarter and GoFundMe all leverage the amazing power of the internet, attracting funding from the very large volumes of people who make up online communities. As a result, more business ideas than ever before are being turned from theories into realities.

“Angel investors”

Angel investors are rich, influential individuals who provide capital for a start-up business, usually in return for convertible debt shares in the company. Finding an affluent individual to believe in your vision is slightly less tough than it used to be, with increasing numbers of investors using the internet. Forming so-called “angel networks”, these investors increasingly share research and pool their resources, enabling them to make more and larger business ideas come to life. A good starting point for finding angel investors is the Investment Network, and this post lists a number of additional African investors.

Loans against assets

If you have financially valuable assets, you can make them work for you. Instead of letting them gather dust, you can use them to secure a short-term loan, obtaining much-needed funds in this incubation period for your business. Antique furniture, art, jewellery, luxury watches and even vehicles can be converted into collateral for a temporary cash injection. Once your business is off the ground and you’ve paid back the loan, your items will be returned to you. Amongst the benefits of this type of financing is that loans are typically issued within less than a day and also without all the credit checks and time-consuming red tape associated with a traditional bank loan. A company that specialises in these kinds of short term loans is Lamna, who have a few offices around South Africa.