Inside this post ...
- There are so many questions an entrepreneur asks themselves before taking the first step, but as the old saying goes, a journey of 1000 miles starts with one step.
- Some crowdfunding platforms include Kickstarter, Indiegogo, GoFundMe, Fundly, JustGiving.
- There are numerous options available to entrepreneurs looking for funding for their start-ups, however some of the options may become more of a risk than beneficial to the startup if it does not become successful.
“The future belongs to those who have the courage to believe in the beauty of their dreams” Eleanor Roosevelt, the longest-serving First Lady in the USA wrote in her syndicated newspaper column dated July 4, 1957 about the dreams of people when the U.S. Declaration of Independence was issued and the Constitution was drafted.
More than six decades later and her words still ring true. Ideas and dreams shape the future and entrepreneurs are at the apex of changing the world as all the technological advances witnessed in the 21st century have shown..
However, ideas as great as they are alone cannot change the world. It’s akin to building castles in the air and we all know how they end, right? Ideas become great only when they are executed, otherwise they remain just ideas. As Eleanor aptly put it, it takes courage, sacrifice and even the risk of being labeled insane to bring an idea to life. As an entrepreneur once you cross the “fear of starting” phase, the next thing that confronts you is the “fear of will it work” phase, but the biggest battle i have to say boils down to “how will I get money to do this”
Yep, funds are like oil in an engine and certainly a car needs a well oiled engine to even dare roar to life, leave alone run. Across the globe especially in the developing world the first people we usually run to when the issue of money comes up are friends and family but again we are not all Rishi Sunak so we don’t have filthy rich in laws like Narayana Murthy as father in-law.
On the other hand, commercial banks also don’t roll out the red carpet to entrepreneurs when they show up with their ‘big business idea’ so talk of being caught between a rock and a hard place.
I am an entrepreneur and I have a dream to make education fun, engaging and wholesome for children between grade 1 – 6 across the globe. My idea is to fuse storytelling and games that take learners through a journey across Africa, unlocking quests as they learn classroom lessons and general knowledge in areas of financial literacy, soft skills, mental health and more.
Sounds like a solid idea, right so armed with only my idea I spent several weeks going through my pitch deck, adding more data and polishing it up to the best of my ability. I then approached an Angel investor whom I thought was the best fit and would understand the vision I had and the direction the project was to take and gleefully open up their wallets and fund my AMUA project.
So I felt confused and deflated when at the end of it all, the feedback I received was that I was unable to demonstrate how the investment would come back. Frustrated i shelved the deck for a month, praying and wondering what to do next until one evening when everything changed but that is a story for another day since it will take me a whole article to tell you how i funded my dream ‘the AMUA project’ to make education fun, engaging and wholesome.
So are you an entrepreneur and you got a Big Business Idea? Here’s all you need to know about Funding Your Big Idea.
There are numerous options available to entrepreneurs looking for funding for their start-ups, however some of the options may become more of a risk than beneficial to the startup if it does not become successful. In a situation where the founder borrows from a friend, they may end up losing the friendship over unpaid loans. Borrowing from a bank could lead to defaulting and in turn damage the business reputation and ability to borrow elsewhere. Entrepreneurs need to be sure that their big idea is worth the risk.
Bootstrapping
One of the best places to start with sourcing for funds is from your own pockets. The concept of bootstrapping sounds great, where you use your money to set up and build the business. As an individual, you can put in a % of the required capital and use this as a basis to borrow from other sources. When an entrepreneur has some skin in the game, it builds confidence in other potential lenders. You can source these funds from your savings, a personal loan or credit card.
The downside of bootstrapping is that it doesn’t often allow a business to scale due to the high financial requirements needed to grow a business. You will need to keep reinvesting your money and this means that the loans you take out could end up being defaulted. Self- funding is a good idea but only up to a certain amount that you will not need to use for your day to day activities or repay within a short period of time.
One may want to consider having a business partner/co-founder who has more financial muscle and can take care of the costs of starting up the business.
FFF: Friends, family and fools
Another option is to borrow from friends and family. Also known as FFF funding which stands for friends, family and fools. These people require less return on their investment and sometimes they may not even ask for the funds back. When people believe in you or your idea, they may want to see you succeed in it and are more than happy to help. However, not everybody can access funds this way because it may not be easy to find friends and family willing to put in their money into such ventures.
Crowdfunding
A third option is crowdfunding. This is a more modern and formal version of FFF funding that gives you access to a wider pool of potential financiers. Not all crowdfunding initiatives succeed and not all types of businesses can crowdfund. Generally, businesses that are in product development, creative and technology development tend to crowd fund. Some crowdfunding platforms include Kickstarter, Indiegogo, GoFundMe, Fundly, JustGiving. One is able to easily put up their profile, a brief description of their idea and a target amount of money that they are looking to raise. The platform gives you the opportunity to share the fundraiser with your networks and raise funds. The benefit of crowdfunding is that you retain your business equity and intellectual property.
A more traditional way of sourcing for funds is through bank loans. These loans tend to take a long time to come through because of the requirements needed to secure them. If a startup has already done a proof of concept for its idea and has managed to secure some revenue through LPO or contract, they could use this as a form of security to acquire the loan. However, not all loan applications go through and this could end up disappointing the entrepreneur. One needs to have a successful track record of their business to secure a loan, this makes it impossible for startups at the idea stage to get funding from a bank.
Grants
Grants from an NGO, the government or any other body may be available to an entrepreneur however, the business would need to tie in with the mandate of the organization issuing the grant or the government policies and agenda such as sustainability or blue economy. It may be useful to look into these options because the grants give a reprieve and the entrepreneur is not required to give up shareholding.
Incubation hubs
Other options include accelerators or incubation hubs. These are great because the startup will not only get assistance in fundraising but also in capacity building to enable the entrepreneur to understand how to run the business better and plan for growth. One can join an incubation hub within their geographic location. It is important to note that these hubs work with cohorts of businesses that are providing similar solutions for example, a cohort dealing in Blue Economy or Fintech or Agriculture and technology or Game development and creative will tend to accept startups with similar solutions that they are developing under each respective category. It is important to research and understand what the criteria of an incubator is before applying to one.
Angel investors
Angel investors are another option. These kinds of investors tend to be silent partners and are in it to make a return on their investment. They offer flexibility and continued funding depending on the needs of the business. They also tend to act as a mentor and even open up the business to their networks where suitable, to help grow the business. They however require the startup to have a 5-10 year exit strategy.
Venture capital
The final option I will share with you is venture capital investments. Once your big idea has taken off the ground and has begun to bring in revenue, a VC investment could help you scale up. A VC will require the company to be valued and business model evaluated before they decide to invest. The investment of a VC is usually in large sums so it is advisable to first grow your business and bring in substantial revenue before approaching a VC.
I hope this article has helped you and I encourage you to start on your own idea as well!
Meet Joyce Muthoni
This article has been authored by Joyce Muthoni, a brilliant and passionate African Woman on a quest to change the world. She wears many hats from being a leader, mentor, CEO, brand consultant to an entrepreneur for over 12 years. Her first business was in training in personal branding, image and etiquette. She is the CEO of Viral Gorrila limited, a digital marketing agency offering bespoke digital strategies to both early stage and established companies, and recently a game development enthusiast and businesswoman.
Over the past 5 years, Joyce has been a partner to several incubator hubs and
accelerators such as NAILAB and PANGEA, working with tech startups in different
industries such as finance, agriculture, transport and more.
She has also coached and mentored CEO’s and offered consultation services to organizations such as Africa Digital Media Institute where she was able to plan and execute marketing strategies that led to 3x growth of student intakes and increased brand recognition in the country.
About the Author
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