The search for investors to fund a start-up is one of the most challenging tasks for any entrepreneur and can take months or years, and sometimes diminish your belief in your vision.
Executive coach Refilwe Khumalo says it’s advisable to avoid obsessing about securing funding, as this can be a barrier to moving from having an idea to executing it. “Instead of waiting on funding, rather do the best you can with what you have and let investors find you already on your journey. Doing this often gives investors confidence in you as it demonstrates that you too are invested in your vision. This will also enable you to present investors with milestones and metrics which detail your success.”
Khumalo adds that to fund your own vision you should consider bootstrapping or leveraging passive income strategies.
Start with your family, friends and networks : This strategy helps you to manage risk and minimise your exposure to high interest rate loans because starting a business on a loan itself can be a challenge. When approaching your family or networks, be mindful to draw up an agreement that all parties should sign and commit to. Remember to always be honest with them when you cannot keep up with repayments and make revised arrangements to avoid damaging your relationships.
Corporate sponsorship/CSI funding : Many large corporates have budgets set aside to support start-ups and entrepreneurs whose businesses are aligned to their sponsorship or CSI agendas. Research and make a list of corporates that operate in your industry or that share the same values, mission and vision as you, then put together a proposal and seek opportunities to pitch for funding.
Successful entrepreneurs/Angel investors : Do your homework on successful entrepreneurs and angel investors who are high-net-worth individuals who may not necessarily play in the corporate space or even in your industry but run very successful organisations and have a passion for investing in emerging entrepreneurs. Ensure that you understand their mission, vision and expansion strategies so that you can pitch to them for funding.
Advance payment plans with partners or investors : After successfully winning a pitch or obtaining buy-in with a financially secure partner, negotiate advance payments to use this money as capital to execute your business idea.
Venture capitalists : These are professional investors often seeking “out of the box” ideas with the potential of making millions in return. If you have a scalable and proven business model consider approaching venture capitalists.
Crowd funding : Go online to seek crowd funding sites where there are investors that can make a pledge to fund your start-up, pre-buy your product for delayed delivery or make donations to help you execute your business idea.
“Funding is a complex tradeoff that requires a well thought out funding strategy and pitch, not only to win investors, but to also be in a position to negotiate terms that will better suit your repayment abilities, equity and control appetite,” says Khumalo.
“Remember that ultimately investors invest because they want to make money, so for a winning funding pitch ensure that you demonstrate your revenue model and show the investor exactly how you are going to make them money in return for their risk to invest in you and your idea.”
Article by : Nazley Omar