A comprehensive step-by-step procedure with tips, best
practices, resources and document templates you will need.
Starting
a business and one of the aspects that entrepreneurs find most
daunting is raising start-up capital. Gone are the days of pitching investors
with hot new technology ideas. Today, entrepreneurs are much more likely to
dive into their own pockets and hunker down for a battle to start up and stay
alive. But if you don't have the cash in your wallet, what do you do? Luckily,
there are still options for funding new companies, but finding and securing the
cash will take careful research, good negotiating skills, and, above all, an
unflagging commitment to launching your new business.
Start
your capital search with a good business plan that shows investors and lenders
your company's potential. Follow that up with a thorough knowledge of the
resources available and a determination to make your business a reality, and
you should be on your way to uncovering a source that fits your new business's
cash needs.
1.
Conduct a
comprehensive business assessment
You will need to first do a fair complete
assessment of your business. It’s important that you look good before you ask
for money, have a good, innovative idea and know what else is out there, who’s into
similar market as yours, what income they made, if you need to move and who
will benefit from your business.
TIP:
Here are some important questions
to ask yourself before you start asking others for money:
·
How much capital do I need and when do I need it?
· From whom do
I want the money? Do I respect them? What compromises will I accept?
· What is the
value of my company?
· Who might be
interested in my company?
· What are my
legal responsibilities to potential investors? How can I pay back? Do I have a
lawyer? Do I have an accountant who can aid me with the numbers?
Know the legalities before raising support.
These are the document-templates
you will most definitely need to rely on. But don’t forget to consult with your
lawyer for scrutiny after you have had the document prepared.
·
Management Audit
·
Worksheet Strengths and
Weaknesses Analysis
·
Worksheet Strengths and
weaknesses
·
Worksheet Business Analysis
·
Worksheet Self-Assessment
2.
Write a business
plan
Work out a product pitch. This should first be a one-liner you
can explain in an elevator. Example, “I’ve designed a new kind of underwater
camera that will benefit photographers, travellers, marine specialists and nature
enthusiasts and I have a detailed plan on how to produce it, market it and get
it into the hands of the target market.” When you can describe your plan in that short of
words or less, create a full pitch for it, with all the pertinent details from
your business plan. Remember, you are
asking people to either invest or donate money. Prove that you are worth the
investment.
TIP: before writing a full
business plan, start by covering the essential elements like: product/service,
market, target customers, marketing strategies, business model sources, competitive
advantages, required start-up capital, etc.
Below is the document you will come in contact with while
sourcing for capital in your early phase of your business:
·
Business Plans,
you need this one! Like it is a must. Need I say more?
3.
Finance yourself
Instead of planning to raise a large sum, or disturbing
anybody, if you want to keep your dignity and self respect, consider taking
money from your savings. Or try to create a product or service that you can
sell and start selling. Use the revenue you are making to finance future
product improvements and development. This is called Bootstrapping.
TIP: Another
good option is to self-finance the early steps and seek funding half-way
through the process – after you have incorporated and done all the research,
and are looking to start production and/or launch your services.
4.
Go to your friends and
family
Just because you know them well does not mean they do not
deserve the same respect, presentation and information you would give someone
you just met and are asking for money. Give them the full business plan and
your complete pitch. Also, think of it as a safe practice zone before you
present your pitch to a potential investor.
Document templates you will encounter or need for this
specific step are:
·
Personal Guarantee
·
Payment Guaranty Demand
Note
·
Promissory Note
·
Debenture form
·
Financing agreement
5.
Consider a loan but
only as a last resort
Banks and other traditional lenders exist. Be sure to read all
of the paperwork before signing up. It usually easier to get a loan for an
established business rather than a start-up but you don’t have much to lose to
ask your banker! Or even better, a few local banks…
TIPS:
· Consider microloans from private companies and non-profits,
usually up to ₦20,000,000(twenty million
naira) Examples
include Jaiz Bank, Taj bank to name a few.
·
Also, not precisely a loan, but some of your vendors
defer payments until you see a return on the product or service, which is
called Vendor Financing.
Documents
you will most likely encounter if you are the one seeking for a loan:
·
Bank Loan Application form
and checklist
·
Loan agreement
·
Loan application review
form
·
Loan Calculator with extra
payments
·
Financial ratio calculator
·
Credit Agreement
·
Letter of request for an equity
investment
6.
Look up crowdfunding
Crowdfunding is a great way to raise funds, especially if you
have a business idea that is easily accessed through the Internet. By using one
of the platforms below you can sign up for an account, create a project, make a
pitch and then share the project over social networks, your website and a
myriad of other ways. People can donate to your project from all over the
globe, which is free advertising for your business after it gets funded!.
Check out the following websites:
· NaijaFund. NaijaFund is one
of the free crowdfunding platforms in Nigeria. It allows anyone to raise money online for anything including but never limited to business start up.
·
Fund An Enterprise. Fund An
Enterprise is one of the fundraising websites in Nigeria.
· CircleUp. CircleUp is
another leading crowdfunding site in Nigeria. It helps you connect with foreign investors who have interests in the Nigerian market. CircleUp is an investment platform that provides capital and resources to innovative, early-stage consumer brands.
·
MicroVenture.
7.
Find Investment
Companies and Angel Investors
Before you approach an investor, figure out all the terms. You
will be dealing with Term Sheets, which are the documents involved with signing
up investors. In these sheets, investors will try to determine your valuation.
A valuation is a number value on your company, its assets and its potential
income. Flutterwave, Patricia, Abeg, Piggyvest, Paystack and most fintech companies have taken this approach.
TIPS:
-Build a pipeline of investors: have lots of meetings
and make the process competitive. Know your numbers for the meeting —look back
to your research. Keep your business plan handy.
- If you decide to follow-through with investors, look up
investment forums or groups on Facebook, Nairaland, Quora, Reddit, Clubhouse (yes, trust
me, this app is very useful once you use it wisely)
You
may need these document templates depending which party you are (investor or
entrepreneur):
v
Term Sheet (more details
will be talked about later)
v
Term Sheet for Series A
Round of Financing
v
Collateral debenture
v
Convertible Debenture
v
Debenture and Trust Deed
v
Debenture Pledge Agreement
v
Participating and
Convertible Debenture
v
Due Diligence Requisition
List
v
Checklist dealing with
shareholders and investors
v
Shareholders Agreement
v
Adhesion to the unanimous
shareholders agreement
You can purchase to purchase any of the documents from here.
8.
Talk to a Potential
Business Partner
Find someone with capital who likes your idea and suggest a
partnership. Or, find someone with business connections. Or, find someone who
balances your shortcomings and/or has more experience in an aspect of your
business plan. A partner is who is all of these things is the best, but even
one of them could help you a lot in your venture. Look up this site for more
tips http://addicted2success.com/startups/8-clever-ways-to-raise-money-for-your-new-startup/
9.
Dive into the Risky
stuff
Take more risks. Take another loan. It can be a risk, but it
can also be a great way of getting your business off the ground fast. Fortune
only favours the bold.
You may need the documents should the need arise:
v Pooling agreement
v Mortgage
10. Consider Government Aid
Most governments – at the local,
state/province and country level – support new businesses. Check out what
grants and programs might be available for your
enterprise.
You will actually need:
Grant Proposal Template (there will be blog on
how to write this)
11. Other methods to raise financing
These methods might not be for all
businesses but they are worth considering:
•Equity Crowdfunding: like crowdfunding but
allows people all over the globe a chance to make a small investment in your
business.
•Peer-to-peer lending: similar to
crowdfunding too, but instead it is a bunch of small loans.
•Incubator funding: funding that starts out
private to a select few but if your business has great potential, that’s one of
the best ways as you’ll get visibility and mentorship for the same “price”!
PS: To gain the trust of your investors or easily win them over, I advise that you register your company in another country like the USA. Then incorporate the registered company in Nigeria as a Nigerian company. That way, it is a lot easier to raise funds since the investors will have full knowledge that they are dealing with not just a mere Nigerian company but a company whose head office is based in the United States. Why do you think those fintechs easily raise funds to start their business in Nigeria?
