26/02/2025
Business Fundamentals Recap 3: HOW TO RAISE STARTUP CAPITAL.
HOW TO RAISE STARTUP CAPITAL.
I am aware that there are thousands of articles on this topic on the Internet, so I am not going to waste your time with theory, I am only going to talk from experience, as a old timer entrepreneur and as an investor.
First things first. Here are the fundamental rules:
1. No bank will ever finance an idea, no matter how good it is. Banks are not for that. So don’t waste your time trying.
2. If the people who know you, and that is your friends, family, colleagues, people you congregate with at church or clubs or anywhere, if you can't convince these to help you start a business... no stranger is going to assist you, unlessa stranger with an agenda.
3. You must always start. It doesn't matter how small your start is but you must show that you have started and that your idea works, to help the investors or the banks validate your basic assumptions in your business plan.
4. You must write a business plan and master all of it so that it is at your fingertips. Make sure your numbers are accurate and your projections are reasonable.
5. Aim to prove scalability. As long as money is involved, no one is out there to help you, that's not how business works. We want to make money with. So if you can show how you can reasonably scale the business, and that you know everything needed to be done, you are a banker or an investor's best friend.
With these five principles out of the way, the second thing you need to understand is that you are the number one capital in your business. If you believe in it, your money, your mind, heart and soul must be in it. We can not finance your side hustle.
Start your business small and prove to yourself first that it can be done, then to those around you who care about you or know you and believe in the concept and your abilities. Those are what we call angel investors. These can be your family, family friends, friends or just people you have a relationship one way or the other.
Once you have a track record of gradual growth (progress), meaning taxes paid and bank transactions in place, you can then seek investment from a venture capital firm or a loan from a bank or a bank facility.
A bank facility is an agreement with a bank where they pay for your capital needs of a certain project and they get their money, plus their interest once the money is paid. Venture capital firms are firms that are set up to finance growing businesses for equity, debt instruments or any other agreement to get multiple times their investments as your venture grows.
As you scale more and more, you can then mix and match various capital injection models based on your industry and the demands of your business.
Take advantage of government programs, if you can qualify, get the money.
Lastly, in all these, be smart, and don't rush for cash unless you actually need it. Be patient and stick to your business plan. Cash kills small businesses because it clouds judgment and makes you less frugal. Be disciplined. Be wise.
Any questions?
