How to raise financing for your startup

 

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?

 

How to create a joint venture

 

Standard Operation Procedure

 

 

Purpose: A joint venture is a strategic alliance or partnership between two or more parties that allows both parties, usually companies, to increase their ability to build their separate businesses. Joint ventures are commonly used by companies to become active in a new territory and return higher profits by expanding the company’s network. This should not be confused with partnership. 

 A joint venture can be described as a contractual arrangement between two or more entities that aims to undertake a specific task. A partnership involves an agreement between two or more parties wherein they agree to share the profits as well as any loss incurred in a single venture.

 

Frequency: When needed

 

Procedure:

 

1)     Determine your need for a joint venture.

 

2)     Define your business objective.

 

3)     Research potential partner.

 

4)     Determine if the partner represent a good fit.

 

5)     Prepare and sign a non-disclosure agreement.

 

6)     Decide the format of the joint venture.

 

7)     Draft the joint venture agreement.

 

8)     Determine the management of the joint venture.

 

9)     Define the role of the employees in the new entity.

 https://www.entrepreneur.com/article/77730

Definition/Explanation:

 

            I.     Need: It appear when in your regular business operations, you reach a point when you realize that your business doesn’t have the expertise, technology or operations in a specific area. One way to solve this is through a joint venture with another company that has expertise or operations in that missing area.

 

          II.     Business objective: What will be the purpose of this new business? When you have an idea, you must determine the business objectives. They must be clear. Describe the purpose of the joint venture that you foresee and identify its goals. This will need to be a document that you can share with potential partners to generate interest. The need for the joint venture should be compelling and self-evident.

 

         III.     Partner: You must identify some potential partners. They must be able to complementary to your activities. Maybe it’s a competitor or a distributor. Networking in the business community is a useful way to find potential partners. Shop around, meet with other business leaders, and focus on entities that provide the services or already have the expertise that you need.

 

        IV.     Good fit: Examine the operating structures of the two companies to see if they are compatible. Both companies must be able to work together efficiently and frictionless. Both companies must be committed to success, same things for their employees. Also, it’s important that both companies are financially strong to support the joint venture.

 

          V.     Non-disclosure agreement (NDA): This is a form of a contract by which both parties agree not to disclose or take advantage of anything obtained from the other company. Because of the nature of a joint venture, it’s important to sign an NDA, because your business will share sensible information with another entity. You may choose to prepare an NDA, or confidentiality, agreement before you begin the joint venture.

        VI.     Format: Depending the project (type and size), the format on the joint venture could be different. Sometimes it’s a new corporation, a partnership, or a simple contractual agreement. Sometime, the help of an attorney could be beneficial to determine the format that suit well.

 

      VII.     Joint venture agreement: When drafting the contract, be sure to name the parties to the agreement, with a brief description of each party’s operations. Then introduce the name of the new joint venture and include a brief statement of its intended purpose. The purpose is often stated early in the joint venture agreement. Also, define terms that should be clearly defined. Identify the business objectives of the joint venture. The statement of the objective must be clear and defined, so that the parties to the contract can identify when their task has been met. Finally, define the structure of the joint venture.

 

    VIII.     Management: For the success of the joint venture to succeed, both entities need to agree how they will run the new business. You need to decide if you will create a separate board of directors, elect officers, or set up a team of representatives.

 

        IX.     Role: You need to consider which workers will contribute to the joint venture, and in what proportions. The agreement needs to identify which employees will perform specific functions and how the work of the joint venture will get done.