The biggest challenge most entrepreneurs encounter today is raising capital. The underlying fact is that without capital you cannot establish a business no matter the sophistication of your idea.
In the past, the options for raising capital was very narrow: a magnanimous family member offering a loan or you approach your bank for a loan. However, in present-day Nigeria, entrepreneurs whether young or old have a wide array of opportunities to raise business capital. The key role they have to play is to have an impregnable business idea, a scalable and tested product or service and of course, a grounded and impeccable knowledge of the market among others.
A good business you can take a cue from is Jumia. The tech startup recently listed its shares on the New York Stock Exchange. It did not simply arrive at that zenith overnight. The ‘Alibaba of Africa’ has been on the road since 2012 when it launched in Nigeria. It pioneered online shopping in the country. This attracted other investors like MTN, Rocket Internet, AXA, Goldman Sachs, Orange, CDC and more recently Andre Iguodala and Mastercard.
These investments enabled Jumia to expand its innovative solutions to other parts of Africa. You can see the steady and strategic growth of the business.
Therefore, entrepreneurs should note that although raising capital is no longer rocket science, it is important to have a growth plan. This said, here are some of the sources to raise capital without necessarily approaching a bank.
Crowdfunding on sites such as GoFundMe, Kickstarter and Indiegogo can give a boost to financing a small business. These sites allow businesses to pool small investments from several investors instead of seeking out a single investment source. Read the rules of different crowdfunding sites before making your choice. Some sites have payment-processing fees or require businesses to raise their full financial goal to keep any of the money raised.
Venture capital (VC) is where an outside group takes part ownership of the company in exchange for capital. The percentages of ownership to capital can be negotiated, and are usually based on a company’s valuation. If you go with a VC firm, you will usually receive more than just capital, as some firms provide entrepreneurs with additional resources like hands-on assistance from the firm’s network of advisors and accelerators.
Many think that angel investors and venture capitalists are one and the same, but there is one difference. While venture capitalists are companies (usually large and established) that invest in your businesses by trading equity for capital, an angel investor is an individual investor who is more likely to invest in a startup or early-stage business that may not have demonstrable growth like a VC would want.
Banks are no longer the lone source for loans unlike in the past. There are now startups that offer individual and business loan even quicker than the banks. You can get 2 to 4 million naira without collaterals within 24 hours as long as you meet the requirements for securing the loan.