One of the primary duties of an entrepreneur is to continuously raise capital for his or her business. But what happens when that business is still in its startup stage? How will an entrepreneur raise capital for a new small business startup? I intend to use this article to reveal the fundamentals of raising capital for your business.
“Thought, not money is the real business capital” – Harvey Firestone.
If you are a first time entrepreneur seeking to raise capital for your small business startup, then read on as i share with you 12 avenues you can ply to raise capital for your small business startup. If one fails to yield result, you can try another.
Before proceeding to raise capital for your business, i want to clearly state that there are certain necessities you need to have at hand and one of such necessities is a business plan.
12 Ways to Raise Capital for Your Small Business Startup:
1. Family Members
One of the first places entrepreneurs go when trying to raise capital for their small business startup is their family members. Family members will give you money blindly simply because of the love and bond you share with them. Though capital from family members may not be enough to see your business stand firmly, it’s going to give you a push and boost your morale to forge ahead.
2. Friends
The next avenue you can ply to raise capital for your small business startup is to approach your friends. One thing with seeking capital from friends is that they (your friends) might want to come on board as partners. One more thing, your credibility will be a determining factor to your success with raising capital from friends.
3. Angels
Angels are rich individuals that have resolved to use a portion of their wealth to support young entrepreneurs and small business startups. All you have to do is fit into the criterion set by the angel investor and you will see your startup funded, provided you have a bankable business idea backed by a strong plan.
4. Entrepreneurship Supporting Banks and Institutions
Your business startup can also be provided with capital by entrepreneurship supporting banks or institution. Some banks and institutions usually set apart funds to support entrepreneurship. Their terms are usually flexible; these institutions or banks usually request a stake in the new venture and whereby a stake is not requested, they may grant the small business startup a longer repay period.
5. Private Investors
The next avenue you can ply to raise capital for your small business startup is to approach private investors. These private investors are individuals that invest in business ventures with the hope of receiving a massive return on investment. They are usually rich and experienced individuals when it comes to business and investing.
Before approaching private investors; you must make sure your business idea is bankable and backed by a strong business plan. You must also make sure you are capable of defending the proposed budgets stated in your business plan before these investors.
6. NGOs and Not For Profit Organizations
NGOs and Not for Profit Organizations that support entrepreneurship may not directly provide capital for your small business startup but they can help link you up with private investors and institutions. Some of these NGOs have strong working relationships with the elites of the society and big institutions. You can leverage on this relation to raise the capital you require.
7. Venture Capitalists
Approaching a Venture Capitalist is one option you might not want to consider because VCs are tough and strict on their funding terms. Only few businesses ever pass the test of VCs because of their tight rules.
If you pass their requirements, VCs will provide the capital you need in return for equity in the startup. They will also bring their experience on board to make sure your business survives and grow; so they can get back their investment.
8. Banks
You can obtain loans from commercial banks to kick start your business but you must deposit tangible collateral of value. Obtaining loans from banks is one of the less applied tactics to raising capital employed by entrepreneurs because of the requirements and high interest rates.
9. Entrepreneurial Networks and Associations
Just like NGOs, entrepreneurial networks and associations don’t provide direct capital but may link you up with investors and entrepreneurs that might provide capital and bring their expertise on board. Examples of such network and association are VentureHacks.com and SBA.
10. Customers
You can raise capital from customers by showing them a prototype of the product and collecting payment upfront before supplying. This tactics may not see your business explode but it might help it get off the ground. Steve Jobs of Apple Computers kick started his business this way by securing a large order from a customer with payment upfront.
11. Suppliers
Just as the case of raising capital from customers, you can also apply the same tactics on suppliers by seeking supply in advance.
12. Investment Bankers
When all avenues have been exhausted, you can approach investment bankers to provide you with the capital you need. They have the capacity to raise capital for you from the general public. But for this approach to be successful, you must be willing to give up ownership and sell some stakes to the public through an IPO.
As a side note, you can also raise capital for your small business by undergoing Reverse Merger. Reverse Merger is simply the process of merging your business with a publicly quoted company.