Three Things Small Business Owners Need To Raise Start-Up Capital

The Small Business Owner trying to raise cash for the next business idea readily comes to terms with the many reasons investors can give for turning down a proposal.

Reasons like: The business plan is not complete. The projections are overly optimistic. The market is not big enough. The product or service needs further development. The deal being offered is not favourable. And the list can go on.

That’s the bad news!

The good news is that there are people and institutions with money, looking for business proposals with the potential for creating products and services that will make money.

Just consider the following:

• Nigerian start-ups raised $17.6m in Q1 2019, 8.5% higher than 2018.
• Agencies of Federal and State Governments now give grants or soft loans in millions of Naira, for start-ups, often including training programmes.
• Tony Elumelu Entrepreneurship Programme, yearly, gives Five Thousand Dollars to thousands of applicants with successful business proposals.
• Business hubs now provide accelerator and incubator services, and offer financial support and guidance for Small Business Owners to turn their ideas into viable start-ups.

What this means is that we may well be in the golden age of the Small Business Owner.

Which is why you must properly position yourself and your business as you shake the financial bushes. To do this, you must address three things that make a huge difference, between Small Business Owners who succeed in finding capital, and those who don’t: The first is Information. The second is Access. The third is Expertise.

Information: When Small Business Owners think of funding a start-up, the options that easily occur to them are personal savings, family and friends. While these low-hanging fruits come in handy in the founding days, they often run dry long before the business builds a revenue stream to sustain it.

At the formative stage of the business, the Small Business Owner, without a proven business model or an acceptable collateral for a loan, will need information about a wider portfolio of funding sources. Like start-up grants, angel investors, venture capital, crowdfunding and instant loans.

With different investors and lenders now active in the small business ecosystem, Small Business Owners must be well informed about their existence, the requirements and guidelines of the businesses that interest them, and deliver proposals and pitches that address their needs, and result in great deals and good returns for promoters and investors.

Access: Investors need good businesses in which to invest their money. They need start-ups that hold promise, and going concerns that can scale. You will be solving a problem for investors if your start-up has potential.

It is, however, not always easy to access or gain the confidence of private and institutional investors. Investors are more comfortable working with people they know, people they like, and people they trust.

If you do not know the investors yourself, it will help to get an introduction through someone who knows them. Most investors only look at investment proposals that someone they know and trust brings, or recommends, to them. It is when you already know the investor(s) or you are introduced by someone who knows the investor(s) that you will get a chance to pitch your business.

This is where your personal contacts and the quality of your business connections can help you access the investors that you need.

With a great product or service, with a strong business plan, a warm instead of a cold introduction to the right investor(s) can make the difference between success and failure in getting investors to sign their cheques to invest in your business.

Expertise: The Small Business Owner in search of capital starts with a great idea for a product or service. By focusing on what must be done to get the product or service to market, he or she struggles with the challenges of limited time, knowledge and resources. But the process of seeking outside investors forces the Small Business Owner to examine the nuts and bolts of the business, and think strategically about the fundamentals of the enterprise.

By so doing, he or she will become an expert in the business rather than just someone with a great product or service, without a considered plan for a profitable and sustainable business.

It, therefore, helps for the Small Business Owner to sweeten the financing deal to include investors’ representation on the Board of Directors or Advisory Board. Beyond strengthening the confidence of the investor in the business, a seat on the Board also adds business expertise to that of the Small Business Owner, demonstrates his or her understanding of corporate governance, and a readiness to build a winning team. Thus, in addition to bringing capital that the Small Business Owner cannot raise otherwise, outside investors serve as links to other industry professionals who have expertise that the Small Business Owner may need.

The Small Business Owner, versed on available funding sources, with access to investors and demonstrable expertise in the proposed line of business, stands a good chance of raising money.

If you need help to find and connect with sources of capital, if you need guidance to pitch and close the deal to get the money you need, visit the SME Clinic at https://smefinance.org/sme-clinic/.

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