Let's face it. Starting a business is tough. You have to build a client base, hire employees, find office space and all that. There are plenty of challenges, but the one that many entrepreneurs find most daunting is raising start-up capital.
Gone are the days of pitching investors with hot new technology ideas. Today, entrepreneurs are much more likely to dive into their own pockets and hunker down for a battle to start up and stay alive. But if you don't have the cash in your wallet, what do you do? Luckily, there are still options for funding new companies, but finding and securing the cash will take careful research, good negotiating skills, and, above all, an unflagging commitment to launching your new business.
Start your capital search with a good business plan that shows investors and lenders your company's potential. Follow that up with a thorough knowledge of the resources available and a determination to make your business a reality, and you should be on your way to uncovering a source that fits your new business's cash needs.
Roughly speaking, investments break down into two forms: debt and equity. You take on debt when you borrow money from a lender, and pay interest on that investment. You are compelled to repay the money with interest over time. Or, you can take on an equity investment -- in which you sell a portion of the company to an investor in return for cash or something else of value.
Each source carries advantages and disadvantages. Consider them well before making choices, for finance decisions are hard to undo. It's not enough to find lenders and investors; you have to pick the right ones. Try to find investors who bring more than cash to the table. Look for supporters who can help you with financial advice, technical assistance, or who can connect you with key customers. Seek patient capital from a sage who can listen to your problems over breakfast and set you straight by the time you reach the office.
And: make sure that you find investors whose interests align with yours. Naturally anyone who lends you money is banking on the success of the company, but be sure that you have clear mutual goals and what (and when) that that definition entails. If you are going to friends or family, for example, make sure that they are not investing money that must be repaid in a few months. And be clear with others what your long-term goals are. You don't want to surprise investors if you eschew rapid growth, or make other decisions that are consistent with your vision, yet don't reconcile with theirs.
"Capital raising should be an extending circle," says Scott Shaw, founder of the Austin Grill, a successful Tex-Mex restaurant in Washington, DC. He explains that you start small with an immediate group of investors who can help you directly. Then you gradually build on that platform, seeking larger amounts from people you come to meet and with whom you will probably have a more formal relationship. Shaw also counsels that you "listen to the capital markets." They may be trying to tell you something about your venture. If you're having trouble raising money, there may be a very good reason why. If you are going out to seek capital -- and the associated advice -- from people who may have more experience, it's a good idea to listen to them! They may know something you don't.
SIMPLE LOANS
So, what are your capital choices? Let's start with simple loans. Your first source of capital will probably be a loan from yourself. Most businesses are founded with cash from the founder's pocketbook. Sure, there are simple advantages here: pure control and ownership. You own the whole company, control the show, and stand to reap the gains should your venture become valuable. Great!
But there's a huge potential downside here as well. Even the best-researched and well-run startups involve risk. And you are putting your assets on the line. It's great to read about risk-takers who take out second mortgages on their homes and borrow from their retirement funds to launch businesses that turn them into millionaires. There are far fewer stories in the news about the many people who take great risks -- and fail. And unfortunately, these stories are very real and very common. So while I believe you need to trust yourself, and take the leap, be sure to consider (and reconsider!) the risk of your venture carefully when investing your own money.
BOOTSTRAPPING
Generally speaking, I can make a case that for any serious minded entrepreneur; too much money is a worse case that too little money. Despite the dream of some entrepreneurs to meet a VC with deep pockets, the fact is that 90 percent of business owners will struggle alone, pulling themselves up by their bootstraps. And that's not necessarily a bad thing. With a little luck and a lot of pluck bootstrapping a business can be both financially and emotionally rewarding.
There are no guarantees of success when self-financing a business, of course, but there are some guidelines that will make the game go smoothly, such as KNOW YOURSELF, LOOK BEFORE YOU LEAP, DON’T SPEND, MAKE A MAP and LEARN MORE.
For a very good example, it’s a brave arrangement if you are able to get your prospects to pay for the proposed goods or services in advance, depending on your packaging and how well you articulate your intentions. Of course you would have to make such prospects see reasons why they are at an advantage by paying in advance. There are also internal business sources for raising business capital. Consider offering incentives to your customers for early cash payment (such as a discount) to accelerate your collections and free up operating cash. You may choose to lease company assets rather than buy them.
NETWORKING
The commonest and easiest form of networking for any young entrepreneur needing start up capital is involvement in NGO’s and COMMUNITY DEVELOPMENT. By involvement, I mean active and noticeable involvement. Serving on project committees and being enthusiastic, this is the only way you can prove yourself and gain the confidence of people who have the resources you are looking for. When they have trusted you as a resourceful and responsible member of their NGO or community associations, it is easier for you to approach people to either lend to you or invest in your idea. You must prove yourself, whatever it takes! This has to be so because even your own immediate family members may never take interest in your ideas unless you proven your worth in the past.
GET A JOB
If you are presently not working and you are thinking of a startup, it would be good you get a job for yourself and try to live far below your income so you could save a little. It is true that you may never be able to save enough to take care of all your startup expenses but you can have something to take care of your preliminary printing such as proposals, call cards, letter heads etc. All these tell how serious and prepared you are to approach a lender or investor. At any rate, you should give an impression that your business already exists. Besides, it is actually possible to run your choice company first as a service business, depending more on what you can do with your skills in terms of advisory services and consulting or brokerage.
PRIVATE STOCK OFFERING
One notable way to raise money (capital) is issuing stock in your private company - in most cases only issue 15 to 45% of your company (depending on the amount of capital sought) so that you retain the majority of the shares and the control of your company. This can be done easily if you have the KNOWLEDGE. The best two things about stock offerings (which there are many) are NO LOAN PAYMENTS and NO RISK of your personal assets, such as your home, car etc. By selling and issuing stock in your corporation, it can be almost like having a license to print money. Each stock certificate represents money (capital) to your business. We are more aware of Public Offerings in Nigeria but the truth is that you can do a private offering otherwise called private placement which does not involve the bureaucratic bottlenecks imposed by the SEC.
CONCLUSIONS
Many entrepreneurs have very feasible proposals and sure business plans but they quickly forget that no man likes to help you succeed without you talking about his own gains as you convince him and show how good your ideas are. In approaching a lender or an investor, you have to be careful not to let him feel that your purpose is all about your dream and how you make money. Your investor and lenders should at every point feel that they have good interest which are adequately recognized and provided for in your proposals. I have not said you should loose control of your business, beware!
One very good skill you must develop is that of negotiation. I suggest you don’t approach any lender or investor in particular if you are not good at negotiating.
Finally, I don’t believe in any magic as far as raising capital is concerned, you either get the rules right or you forget about it and generally it is a continuous and time taking process, so it requires a lot of care and patience.
Good Luck!
OLUGBENRO OYEKAN
March 17, 2007
Gone are the days of pitching investors with hot new technology ideas. Today, entrepreneurs are much more likely to dive into their own pockets and hunker down for a battle to start up and stay alive. But if you don't have the cash in your wallet, what do you do? Luckily, there are still options for funding new companies, but finding and securing the cash will take careful research, good negotiating skills, and, above all, an unflagging commitment to launching your new business.
Start your capital search with a good business plan that shows investors and lenders your company's potential. Follow that up with a thorough knowledge of the resources available and a determination to make your business a reality, and you should be on your way to uncovering a source that fits your new business's cash needs.
Roughly speaking, investments break down into two forms: debt and equity. You take on debt when you borrow money from a lender, and pay interest on that investment. You are compelled to repay the money with interest over time. Or, you can take on an equity investment -- in which you sell a portion of the company to an investor in return for cash or something else of value.
Each source carries advantages and disadvantages. Consider them well before making choices, for finance decisions are hard to undo. It's not enough to find lenders and investors; you have to pick the right ones. Try to find investors who bring more than cash to the table. Look for supporters who can help you with financial advice, technical assistance, or who can connect you with key customers. Seek patient capital from a sage who can listen to your problems over breakfast and set you straight by the time you reach the office.
And: make sure that you find investors whose interests align with yours. Naturally anyone who lends you money is banking on the success of the company, but be sure that you have clear mutual goals and what (and when) that that definition entails. If you are going to friends or family, for example, make sure that they are not investing money that must be repaid in a few months. And be clear with others what your long-term goals are. You don't want to surprise investors if you eschew rapid growth, or make other decisions that are consistent with your vision, yet don't reconcile with theirs.
"Capital raising should be an extending circle," says Scott Shaw, founder of the Austin Grill, a successful Tex-Mex restaurant in Washington, DC. He explains that you start small with an immediate group of investors who can help you directly. Then you gradually build on that platform, seeking larger amounts from people you come to meet and with whom you will probably have a more formal relationship. Shaw also counsels that you "listen to the capital markets." They may be trying to tell you something about your venture. If you're having trouble raising money, there may be a very good reason why. If you are going out to seek capital -- and the associated advice -- from people who may have more experience, it's a good idea to listen to them! They may know something you don't.
SIMPLE LOANS
So, what are your capital choices? Let's start with simple loans. Your first source of capital will probably be a loan from yourself. Most businesses are founded with cash from the founder's pocketbook. Sure, there are simple advantages here: pure control and ownership. You own the whole company, control the show, and stand to reap the gains should your venture become valuable. Great!
But there's a huge potential downside here as well. Even the best-researched and well-run startups involve risk. And you are putting your assets on the line. It's great to read about risk-takers who take out second mortgages on their homes and borrow from their retirement funds to launch businesses that turn them into millionaires. There are far fewer stories in the news about the many people who take great risks -- and fail. And unfortunately, these stories are very real and very common. So while I believe you need to trust yourself, and take the leap, be sure to consider (and reconsider!) the risk of your venture carefully when investing your own money.
BOOTSTRAPPING
Generally speaking, I can make a case that for any serious minded entrepreneur; too much money is a worse case that too little money. Despite the dream of some entrepreneurs to meet a VC with deep pockets, the fact is that 90 percent of business owners will struggle alone, pulling themselves up by their bootstraps. And that's not necessarily a bad thing. With a little luck and a lot of pluck bootstrapping a business can be both financially and emotionally rewarding.
There are no guarantees of success when self-financing a business, of course, but there are some guidelines that will make the game go smoothly, such as KNOW YOURSELF, LOOK BEFORE YOU LEAP, DON’T SPEND, MAKE A MAP and LEARN MORE.
For a very good example, it’s a brave arrangement if you are able to get your prospects to pay for the proposed goods or services in advance, depending on your packaging and how well you articulate your intentions. Of course you would have to make such prospects see reasons why they are at an advantage by paying in advance. There are also internal business sources for raising business capital. Consider offering incentives to your customers for early cash payment (such as a discount) to accelerate your collections and free up operating cash. You may choose to lease company assets rather than buy them.
NETWORKING
The commonest and easiest form of networking for any young entrepreneur needing start up capital is involvement in NGO’s and COMMUNITY DEVELOPMENT. By involvement, I mean active and noticeable involvement. Serving on project committees and being enthusiastic, this is the only way you can prove yourself and gain the confidence of people who have the resources you are looking for. When they have trusted you as a resourceful and responsible member of their NGO or community associations, it is easier for you to approach people to either lend to you or invest in your idea. You must prove yourself, whatever it takes! This has to be so because even your own immediate family members may never take interest in your ideas unless you proven your worth in the past.
GET A JOB
If you are presently not working and you are thinking of a startup, it would be good you get a job for yourself and try to live far below your income so you could save a little. It is true that you may never be able to save enough to take care of all your startup expenses but you can have something to take care of your preliminary printing such as proposals, call cards, letter heads etc. All these tell how serious and prepared you are to approach a lender or investor. At any rate, you should give an impression that your business already exists. Besides, it is actually possible to run your choice company first as a service business, depending more on what you can do with your skills in terms of advisory services and consulting or brokerage.
PRIVATE STOCK OFFERING
One notable way to raise money (capital) is issuing stock in your private company - in most cases only issue 15 to 45% of your company (depending on the amount of capital sought) so that you retain the majority of the shares and the control of your company. This can be done easily if you have the KNOWLEDGE. The best two things about stock offerings (which there are many) are NO LOAN PAYMENTS and NO RISK of your personal assets, such as your home, car etc. By selling and issuing stock in your corporation, it can be almost like having a license to print money. Each stock certificate represents money (capital) to your business. We are more aware of Public Offerings in Nigeria but the truth is that you can do a private offering otherwise called private placement which does not involve the bureaucratic bottlenecks imposed by the SEC.
CONCLUSIONS
Many entrepreneurs have very feasible proposals and sure business plans but they quickly forget that no man likes to help you succeed without you talking about his own gains as you convince him and show how good your ideas are. In approaching a lender or an investor, you have to be careful not to let him feel that your purpose is all about your dream and how you make money. Your investor and lenders should at every point feel that they have good interest which are adequately recognized and provided for in your proposals. I have not said you should loose control of your business, beware!
One very good skill you must develop is that of negotiation. I suggest you don’t approach any lender or investor in particular if you are not good at negotiating.
Finally, I don’t believe in any magic as far as raising capital is concerned, you either get the rules right or you forget about it and generally it is a continuous and time taking process, so it requires a lot of care and patience.
Good Luck!
OLUGBENRO OYEKAN
March 17, 2007
