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 get your startup acquired by another business

How to get your startup acquired

 

 

Starting your own business is a terrific idea for a number of reasons, such as the desire to be your own boss, the need to get things done, a strong belief in your goods and services, or even the need to increase your income. What is required for a startup to succeed is as follows:

·      Strong company structure;

·      Solid sales marketing plan;

·      Devoted managerial team;

·      High-quality accounting;

·      Strong legal team;

·      Healthy financial resources or a clear plan to obtain them; and

·      Ensuring that best industry standards are followed.

 

Whatever your motivation for starting your own business, startups still have a poor success rate because they depend on a lot of different things. Many business owners are grateful for their startup to be acquired (i.e., bought over) by a larger company so that they may make a respectable profit when they sell their company. In fact, American businesses buy many startups on the worldwide market, take Nigerian company Stripe for instance, and they do so at a higher price than their European counterparts. Before deciding to allow a large company to acquire your startup, there are several things to think about, just like with any purchasing or selling transaction.

 

Knowing your potential buyers

It's crucial to first comprehend the many types of purchasers and acquirers you can run into:

 

Venture Capitalists

Investors in your firm that wish to take it to the next level could be potential buyers. VCs may offer to simply invest in your business while offering advice on how to succeed, but they may also ask you to move aside, sell your stake, or resign from your position in exchange for a substantial quantity of money. If you decide to accept VC funding as an investment, your investors will probably suggest ways to boost earnings. Few entrepreneurs, on average, thoroughly examine their business for potential trouble areas.

 

A Competitor

There can be many other businesses in the market for your specific good or service, and you might not be the only one. A rival may want to buy your startup so they can take your clients as their own, or they might want to buy it so they can close it down to get rid of the competition.

 

Strategic Buy

A company that your startup supplies to might decide it makes more sense to buy your company than to pay you money to be its vendor for your services or products. As an alternative, a business can be interested in purchasing your organisation so that it can market your goods to clients under its brand.

Intellectual Property

A company may become the target of an acquisition if it owns a copyrighted product or a trade brand that another business wants. Patents, trademarks, and other intellectual property can be very valuable.

 

Now What?

Get a free proposal from me

The simple part is that we have identified the many purchasers who might be interested in buying your business and their possible motivations. The following step is to figure out how to increase your company's visibility and appeal to potential buyers. You will need the following items to do this:

·      Those with the Means to Acquire You: Choosing between building and purchasing is a decision faced by large corporations when looking to expand. Let us imagine, for the sake of argument that Dangote Group wants to add energy bars to their line-up, and that your business happens to make them. Dangote Group could always create an energy bar division from scratch, but if a business already exists that fits their requirements, buying that business might be more cost-efficient than starting one from scratch. If you want to position your startup as an acquisition target, you must first find possible buyers and then prepare your business to sell to them.

·      Proprietary Technology: The odds of customers purchasing your good or service might be greatly increased by technological integration. For instance, a well-designed system or software that effectively gets your product or service into the hands of your customers can quickly make you visible to larger businesses trying to expand.

·      An Attractive Product: If acquisition is your primary objective, you must have an excellent product. An outdated business maxim states that in order to compete in a market, your offering must be superior to those presently available in terms of quality, value, and timeliness. Disruptive is still included in that list today. An invention that "creates a new market and value network and ultimately disrupts an existing market and value network, displacing established market leading enterprises, goods, and alliances" is what is meant by disruption. Uber and Lyft are two prime instances.

·      Joint Value: Finally, put yourself in a position to demonstrate how a potential merger will benefit both you and your acquirer. The trick is to convince the potential acquirer that your business will help them become profitable while also making sure that your efforts and hard work are recognised.