Did your heart skip a beat when you read the title? Be honest. I admit that mine does, a lot, when I think of how to raise money for an idea that I am passionate about. How do I raise this amount of money that is at that time beyond me? It is actually a scary prospect. This is one of the principal reasons many people don’t go into business, because they are unable to raise the needed capital to execute their ideas.
But all hope is not lost. Let me share a few of my experiences on how to raise money for your business:
Strip it to the basics
Determine the least amount of money you would require to start the business. This means that you should cut out all non-essential needs from your budget. Do you need an official car to start with? Cut it out. Can you share an office with another firm rather than renting your own? Cut out the rent costs.
Invest in yourself
Start with your own personal investment. If you cannot put in your own funds, why should someone else do so?
Debt or Equity
A question you should answer when raising financing is: debt or equity? Debt financing refers to loans from either individuals or financial institutions, while equity is investment into the business. They both have their pros and cons: while equity financing is less risky and you can reinvest your profits into the business, it will require you relinquishing some ownership of the company and you can’t take major decisions without the input or consent of the shareholders. Debt financing, on the other hand, allows you to retain full ownership of your business and your relationship with the lender ends once you pay the loan back. However, the loan must be paid back in a fixed amount of time and should you have cash flow problems, it makes things tougher for you.
Exploring social capital
Once you have decided for debt, equity or a mix of both, an excellent place to start is with family and friends. Tap into your personal network and sell your business idea to them.
Research for grants
Explore grants for your business idea. Grants are loans that you do not have to pay back but are given with conditions attached. There are quite a lot of grant opportunities out there, especially for businesses in developing countries such as Nigeria offered either by governments or multilateral organisations.
Seek professional advice
When it comes to receiving equity investment, seek the advice of an investment professional or lawyer so that you don’t sign agreements that are detrimental to your business. It will not be wise if you end up working for someone else who owns majority shares of your company under the guise of being an investor.
Capital is not money
Another approach to raising money is to keep in mind that capital is not all about money. Your skills and experience are also kinds of capital. You can leverage on them to start your own business, cutting down how much financing you need.
Keep in mind that raising financing is not a walk in the park, especially for a new business. While seeking capital, keep revising your idea and the plan to make it succeed.