MSME Financing // 5 Ways To Raise Capital

MSME Financing // 5 ways to raise capital

Money is the bloodline of any business. The long painstaking yet exciting journey from the idea to revenue generating business needs a fuel named capital. That’s why, at almost every stage of the business, entrepreneurs find themselves asking – How do I finance my startup?

According to the Bureau of Labor Statistics (BLS), over 94% of new businesses fail during first year of operation citing lack of funding as one of the common reasons. This is a hard truth that you’d do well to meditate on. Entrepreneurs may even want to write their failure post-mortem before they launch their business.

Why? Because very optimistic entrepreneur needs a dose of reality now and then. Cold statistics like these are not intended to discourage entrepreneurs, but to encourage them after all finding funds might no be as hard as it is perceived.

So as you look forward into growing your business, here are the six funding options for startups and MSMEs that will help you raise money for your business.

Bootstrapping:

Self-funding or Bootstrapping is one of the oldest ways of funding your business. Provided that your business isn’t operating in an industry that requires lots of startup capital, you can potentially fund your own venture and it may be more feasible than you think.

Perhaps you think funding the business yourself carries lots of risk and it does. But it’s important to consider your potential.

Bootstrapping is a tough way to go. It places all the financial risk on the entrepreneur. Extremely limited resources can inhibit growth, prevent promotion, and even undermine the quality and integrity of the product or service envisioned.

On the other hand, the entrepreneur can maintain total control over all decisions and the business itself. And all the energy goes into the product itself, not into pitching venture capitalists and other potential sources of capital investment.

Many of the successful companies that we see today had their humble beginnings as a bootstrapped enterprise. Examples of these include:

• Dell Computers (DELL)
• Facebook Inc. (FB)
• Apple Inc. (AAPL)
• Hewlett-Packard (HPQ)
• Microsoft Corp. (MSFT)
• Oracle Corp. ( ORCL)
• eBay Inc. (EBAY)
• Cisco Systems Inc. (CSCO)
• SAP (SAP)

Crowdfunding campaigns:

The digital era has made raising funds for your business idea, nonprofit cause, or personal needs easier with the use of online crowdfunding platforms.

Crowdfunding gives you the opportunity to connect with like-minded people who you wouldn’t normally be able to engage. You can gauge interest in your product and understand what’s resonating with people and what’s not. This shows you how to improve your product and your pitch. Most importantly, crowdfunding can help you raise money to fund your business.

To date, people have raised more than $34 billion worldwide using these platforms, with easy-to-use tools that provide a smooth experience for both fundraisers and their supporters. Whatever your reason for raising money, there is a crowdfunding site for you.

Some leading platforms that can help you in Crowd funding include

• Mchanga
• Indiegogo
• SeedInvest
• One Percent Club
• Kickstarter

Always keep in mind that when preparing your video pitch you must show the value of your product, the need it serves, and why you require support. Having a good website and doing PR outreach helps as well.

Angel Investors

Angel investors can be a good source of capital for your business. First, you must have a solid business plan put together and a great pitch ready. You must capture their attention with enthusiasm and promising data points about your company’s current situation and future potential.

This is having successful entrepreneurs and or corporations committing their funds to your business for potential future gains. They are willing to invest at startup or the early growth stage in exchange for equity in the venture. They could be friends or family members but are mostly strangers interested in helping new companies with innovative ideas to bring them to fruition.

You may be wondering how you find angel investors. This might seem difficult, but many resources exist. Some of the angel investor networks in Kenya include;

• Kenya Angel Investors
• African Business Angels Network

Venture capitalists

Unlike Angel Investors , Venture capitalists (VCs) typically want to invest in slightly more mature companies and sometimes want to have more of a say in managing the day-to-day operations.

Since VCs have a responsibility to achieve certain returns for the firm or fund, they want scalable and cash-flow positive companies with proven and scalable products and businesses.

If your company satisfies these requirements, you could apply for an investment with a VC firm. It’s not the easiest thing to accomplish, but plenty of small businesses have done it successfully.

Your pitch is crucial to obtaining funding. You need to convey the main reasons why an investor should love your business in the first 5 minutes. You can achieve this by explaining

• What’s changed. Detail the innovation, industry shift, or problem that presents substantial opportunity for your company.
• What you do. In one sentence, show how your company can capitalize on this opportunity.
• Your facts. Get to your company’s story and financials quickly. Lay out the opportunity with numbers. Discuss the team and their abilities and experience.

You can also check out these 11 slides that will help you create a perfect pitch to investors.

Some of the leading venture capital firms Kenyan SMEs can consider are:

• VC4Africa
• Safaricom Spark Fund
• DOB Equity
• Savannah Fund

Loans

Though viewed as a traditional way, bank loans are among the greatest and reliable sources of finance for any business. This is because banks offer you flexible loan payment options, which makes the loan repayment journey easier especially for young entrepreneurs. Unlike other ways of raising business funds, banks will give you a contract that best suits your need.

This is where a business borrows from an individual, microfinance institution or a bank an amount which should be repaid after a specified period with interest.

Loans can be difficult to access, especially where security is required. However, technology has made it easier to access unsecured loans from mobile-based services such as M-Shwari, Branch and Tala

The main drawback of some of these applications is that they are unregulated and sometimes charge exorbitant interest.

While seeking loans for businesses, banks also have tailormade packages for business that help them access funds easily One example could be Family Bank’s Biashara Boost Product, or KCB SME Banking, a platform that helps unlock the potential of the entrepreneurs in the rural and urban areas to scale up and grow.

In conclusion, securing finance is not as difficult for SMEs as it once was, and the options outlined above are proof of that. Furthermore, innovation and advances in technology means that the list will keep growing. If business owners think outside the box, or at the very least, do their research, getting capital will never be a problem.