Capitals are essential for businesses. Without it, there is no footing to the first level. Every entrepreneur needs to raise capital for business; this is important as the business ideas.
Although owning a business has become one of the major sources of income in the 21st century, it is a great challenge to those who can’t fund it. Everyone wants to turn a great and innovative idea into something massive that would lead to a blast in their financial status until it doesn’t. Why? Because they ignore how to raise capital for business.
Researchers have proven over again that the reason why most startups fail is that they run out of capital. Therefore, as someone looking to become an entrepreneur, you first need to raise capital for business.
In this article, you will learn how to raise funds for business, the strategies, and the successful proof of how it works. There are different ways to raise funds; you don’t always have to start with your funds. To be specific, there are other ways-profitable ones, so stick to the end and be among the lucky ones to choose a suitable method for fundraising.
Table of Contents
5 Ways to Raise Capital for Business
Pitch and win a Business Competition
This is one coolest means to raise capital for business and the toughest. So, this is how it works: you have an innovative business idea, outline it into a presentation, and then pitch it in a business competition.
These days, the number of investors willing to invest in the businesses of startups and youngsters is overwhelming. These investors only need to listen to genius ideas and choose the winner. You can pitch your business ideas individually or as a group.
If you are seeking how to raise capital for a business in Nigeria through pitching, then a great example of a competition that hosts startup entrepreneurs in Nigeria is the People’s United Centre for Innovation and Entrepreneurship.
It is a competition hosted for students or groups of students passionate about business, and the prize money is $15,000. 30 students are allowed to apply to the competition; afterwards, they are narrowed down to 5 outstanding finalists. Afterwards, the winner would be picked and given the prize money and other opportunities. This is an excellent strategy for raising money for business in Nigeria.
There are many other opportunities worldwide too. One of them is called the Seedstars World Summit. It is an annual competition that is open to entrepreneurs all over the world. Like every other business pitching competition, applicants are narrowed down to the finalists, and the winner is picked.
All you need is to be amazingly innovative in your business ideas and secure the great trust of the investors, and that’s it.
Although pitching one’s ideas in front of an audience can be a very fierce move and after it all, you might not be the winner. But the experience it would teach you is one that would sharpen your intelligence for the future.
Crowdfunding is simply a way of fundraising from a wide range of people on online platforms to sponsor your business. It is a way of building a community that has an interest in your business; in that case, they can finance your business in any little way they can.
How does crowdfunding work?
Instead of looking for an individual investor to fund you all the money needed for your business, crowdfunding is looking for many individuals who can pay that amount in units.
I need $10,000 to start my business. So instead of looking for one investor to fund me all the money, I will look for ten investors who can contribute $1,000, or you can even narrow it down to seek 1000 people to contribute just $10 each.
Crowdfunding is fun and easy if you have a lot of customers who are interested in your business and are willing to sponsor.
Major Types of Crowdfunding
There are different methods/types of crowdfunding; they include:
Profit-sharing / Revenue Sharing
To raise capital for business, as a business owner, you promise to share part of the revenues you would earn in the future with anyone funding the business.
Another method to raise capital for business is reward-based crowdfunding. This is when investors expect their rewards in goods and services rather than cash. They fund your business, and you reward them with the goods you sell or produce. This is mostly done with the business that produces commodities.
- You must deliver your services at the appointment time.
- No repayment of funds, just distribution of commodities after production.
- Complicated products aren’t suitable for reward-based crowdfunding.
- This method is particularly for businesses with great innovations and a high chance of getting customers’ attention.
This type of crowdfunding is when a company lends money from a group of people, and in the future, the company gives back the money to them with interest. It is also a good way to raise capital for a business and an alternative to a bank loan. People are easy to give when it comes to peer-to-peer lending because there is an interest.
- It is flexible, and there is interest.
- The loans are reimbursed through direct deposit.
- Like traditional bank loans, you are legally entitled to reimburse the loan.
Equity crowdfunding is also a way to raise capital for business. You sell your business shares to investors in return for their investment. The benefits of equity crowdfunding are that it turns out to bring out potential investors.
- A large number of investors are active in equity crowdfunding. There will be a lot of co-owners that invest little Instead of a few investors that invest heavily.
- There always has to be proof that your business is ready for investments.
- You must be diligent with your investors because they are also part of the business responsibility.
- The terms of the shares must be set; that is, how many shares the investors will get, how much profit, and so on.
This type of crowdfunding allows businesses to use more than one crowdfunding.
When a business issues debt security such as bonds, individuals invest in it.
This is a charitable way to raise capital for business. In this crowdfunding method, Individuals donate willingly to a business without expecting any reward, either in cash or in products.
Apply for Government Grants or Loans
Government grants or loans are the easiest and almost-free method to raise capital for business. All you need to do is search for Government grants and apply with your details. But, of course, you can also do the same with the loans.
In Nigeria, most of the time, you don’t even get to pay back the loans. When you apply for legit government loans, no one will ask you to pay them back, but not in all cases. Thus it is advised to go for grants and if you can’t get the grants, search for loans.
Many startups and entrepreneurs don’t know about government grants, and others don’t believe it. However, entrepreneurs like Alyssa Furtado of Rate Hub have gained grants from the government of about 1m dollars, which has greatly supported her business.
For more insightful posts, subscribe to our Newsletter.
Convert Social Capital to Financial Capital
If you want to raise capital for business, why not let the people close to you hear about them first? Gather up all of your true loved ones; they should be your first true fans. Pitch your idea and have them invest in your business.
This method requires you to set up your business and never disappoint. Since you’re pitching your ideas to your loved ones, you wouldn’t want to fail them and create a failing business. Therefore, you must accomplish your business idea in the best way.
This was the method Jim Ma used when he started Alibaba.com-an e-commerce website, in 1999. He gathered eighteen friends and pitched his idea to them, and on that same day, he made about $60,000 to start up Alibaba. As of 2014, it was recorded as the largest IPO in history. It was also worth $21 billion on the New York Stock Exchange.
Partner with an Individual who can Invest
You can find partners who are capable of investing in your business. If you research well, you will find that many great companies worldwide have two or more co-founders. So, while it is a great way to expand your business, it is also a way to raise capital for business.
Many want co-founders or business shareholders but don’t know how to do so. Some have a fraction of an idea in business but don’t understand another strategy. Hence, they would need someone to guide them or join them.
This set of people might have government work they go to full time or even be full-time freelancers at home. So that’s when you grab the opportunity and invite them to be part of your business.
Do you know that apart from Mark Zuckerberg being the owner, he has a co-founder? Yes, he does. Mark Zuckerberg started Facebook with the Winklevoss brothers _ a set of twins that founded a social media website similar to Facebook that they named Uconnect. Well, it was said that Mark Zuckerberg and the Winklevoss were no longer together, but there were still other co-founders with Mark.
In 2004, the Winklevoss brother was given $65 million and a stake in Facebook. Mark Zuckerberg stated that he got the idea of Facebook from them, thus making him the idea behind the establishment of Facebook.
The same thing goes with Microsoft Office. Bill Gates started Microsoft office with Paul Allen, his school friend, in 1975. They were both very good programmers and made a success out of Microsoft until 1983, when Paul founded his own company. Although he left, he still had shares from Microsoft. In 2018, Paul Allen died of Cancer, making Bill Gates the overall CEO of Microsoft.
In Nigeria, Jason Njoku also used the partnership method to raise capital for business. Njoku created the Iroko TV, one of the largest TV for African stories, movies, and shows. His co-founder is someone named Sebastian Gotter, and he is a German. They met and studied at the University of Manchester.
In 2010, Sebastian, who is German, contributed $150,000 for a 50% stake in the business. While Jason, who is Nigerian and fully understands the local market, was responsible for executing the business plan.
Iroko has become a large industry for African movies, generating around $40 million from global investors.
Although the partnership is a great way to raise capital for business, it can also be a backlash in the future when we stumble upon greedy and jealous partners. Once you have made a great profit from the business, they want to earn more than the supposed gain.
This event occurs with great friends, not to talk more of just two people partnering because of what they can gain. For example, bill Gates and Paul Allen once had a dispute, and Mark Zuckerberg and the Winklevoss twins also had a dispute, but they always gained their shares from the company.
So, although having a business partner can be great, try to make sure you are going into a business with a sincere person to avoid future disputes.
You can connect with us on WhatsApp to get effective tips on how to handle marketing in your small business.
In this 21st century, it is proven that there are much more ways to raise capital for business than you think. You need an innovative mindset to help you kickstart. Try out the strategies above and use the suitable one for you.
Other ways to raise capital include taking loans from banks, using your spare assets, getting advance funding from customers, and much more.
Don’t give up on everyone with a passion for starting a business. Get started already!
More from Insight.ng: