Startup Financing // 5 Most Reliable Ways to Fund your Startup

Startup Financing still remains to be a critical and hot topic for many entrepreneurs. Today we look at a number of ways you can always raise funds for your startup and what it might take.

No matter how great your business idea is, one essential element of startup success is your ability to obtain sufficient funding to start and grow the business.

However, without a reliable funding source in place, startups struggle to achieve significant traction, develop next-generation products or services, hire top-tier talent, and more. 

While many people finance their new companies with their own capital or by borrowing money from family or friends, there are other options available. 

But startup founders must understand that raising startup funding is never easy, and usually takes longer than anticipated.

And, if you’re like most startup founders, it’s difficult to know which types of funding sources you should absolutely prioritize.

Be part of local angel investor groups

Most metropolitan areas have groups of local high net-worth individuals interested in supporting startups, and willing to syndicate amounts up to a million dollars for qualified startups. 

In fact, Investment by angel investors into African startups has recently grown rapidly alongside the development of startup ecosystems, which have greatly increased the number of investable opportunities. 

Early signs of success, such as the emergence of several successful fintech startups, have spurred further interest from angel investors worldwide.

Use online platforms such as ABAN Networks to find them, and local networking to find ones that relate to your industry and passion.

The typical angel investment is $25,000 to $100,000 per company, but can go higher.

It is also good to know what Angel investors look for in companies. Here is a list of what they might look into:

• The quality, passion, commitment, and integrity of the founders
• The market opportunity being addressed and the potential for the company to scale
• A clear thought-out business plan, and the ability to obtain traction toward the plan
• An appropriate valuation with reasonable terms 
• The viability of raising additional rounds of startup funding 

Solicit venture capital investors.

Venture Capitalists are professional investors, who invest institutional money in qualified startups, usually with a proven business model, ready to scale. They typically look for big opportunities, needing a couple of million dollars or more, with a proven team

Look for a warm introduction to make this work. However, as much as you would like to go this way, ensure that you already know and understand the level that your business is at and if your business is fit to for a VC investor. 

It is also important to know that venture capitalist typically focus their investment efforts using one or more of the following criteria:

• VCs are more sector-specific
• Stage of the company (early-stage seed or Series A rounds, or later stage rounds with companies that have achieved meaningful revenues and traction)
• Geography 

Before approaching a venture capitalist, also try to learn whether his or her focus aligns with your company and its stage of development.

AfriLabs Event on investable African Startups

Towards the end of last year, we held a funding 101 event where we discussed how you can know the right investor for your start-up. You can watch the event recap here. 

You can also attend this event by AfriLabs to understand more about the investable start-up. Register here

I came across this comprehensive discussion of venture capital financings, and you can access it here A Guide to Venture Capital Financings for Startups.

Small Business Loans

Small business loans are available from a large number of traditional and alternative lenders. 

These types of loans can help your business grow, fund new research and development, help you expand into new territories, enhance sales and marketing efforts, allow you to hire new people, and much more.

There are multiple types of small business loans available, and options vary depending on your business needs, the length of the loan, and the specific terms of the loan.

To make sure the proposed business loan makes sense for your business, you will need to analyze the key terms proposed by a lender and compare them with terms available from alternative lenders. Here are the key terms to review:

• What is the interest rate on the loan and how can it vary over time?
• How often is the interest payable (monthly or quarterly)?
• When is the principal due or how is it amortized over the life of the loan? 
• What other costs or fees are imposed?
• What are the circumstances when the lender can call a default on the loan?
• Is there any security or collateral required?
• What periodic reports or financial statements is the company required to provide to the lender?
• Are there limits on how the loan proceeds can be used?
• Can the loan be repaid early without a penalty?

Trade equity or services for startup help

This is most often called bartering your skills or something you have for something you need. An example would be negotiating free office space by agreeing to support the computer systems for all the other office tenants. Another common example is exchanging equity for legal and accounting support.

Join a startup incubator or accelerator

These organizations, such as MEST Africa, are very popular, and are often associated with major universities, community development organizations or even large companies. Most provide free resources to startups, including office facilities and consulting, but many provide seed funding as well.