Generating capital can and might seem to be daunting when it comes to starting out; especially in business. However, it doesn’t have to be! In this article, I share ways in which you can generate capital. These are practical ways that can actually work if, of course, you decide to work them.
Before we dive into these capital generation strategies, there are 3 things that you need to pay attention to or put in place before you start raising money for your business.
Think plan! It is very important that you have a plan and in this case a business plan.
No serious investor will give you support without any form of plan! At Least I wouldn’t. On the other hand, it actually helps you to plan the idea and how you will actually use the money when you finally get it all together.
Think business! Create or have a separate account for the contributions you will be given. It is very easy to use a personal account (especially one you use on daily basis) and then end up having your capital misused or unaccounted for properly.
Think success! Decide that the idea will work, with or without funding. In other words, have a base plan that can run while you look for funding to expand your business. I have worked with many people who quickly put ideas down the drain simply because they were not funded.
Of Course, some ideas will solely rely on funding, which means if not funded, they may not work, I understand! However, for such ideas, it is always a good thing to be persistent and innovative in your methods of raising capital.
However, while being persistent and innovative, get some things to work. In other words, do some things in the background. Have your startup levels lowered so that if and when the funding comes in, it will find you in a better place; with some kind of experience! In other words, never wait for anything before you can start! Funding will most likely get available for someone who is already doing something about their idea.
Think Relationship! Decide and plan to have good relationships with everyone who funds your venture, especially those who expect to be paid back. Your business will only be as successful as to the extent they are happy with you. If you frustrate them for any reason, your business will suffer, especially considering the fact that ideas sometimes may not work the first time they are applied. You may have to rely on them again and again for the support. This is very important to remember.
Having said that; let’s now look at funding; How to raise capital for your new idea (or even an already existing one)
This has been sectioned into 2 parts;
- Working with an investor
Working with Investors
1. Friends and family
Friends and family is the easiest place to start when it comes to generating funding for your business. One point of caution, in this case, is; to remember to think business, think success, think relationships. You will need to act professionally when dealing with family and friends as this could potentially spoil the relationship you have with them.
If done right, family and friends are the easiest places to start raising funding because they will most likely be willing to listen to you.
You can even get innovative with this. How about organising a nice dinner party so that you can share your idea in an amazing way. Everyone will most probably be happy to hear on the day, which makes it a good place to start sharing ideas.
These are online platforms where all you need to do is have a cause that people can actually believe in and support. For example, if you are introducing a product that is going to be used by people. Structure your plan introduce your idea and hopefully get funded.
Just a piece of advice though, you might want to avoid having too many investors because this means hundreds of people or investors that are going to be on your back having different levels of ownership. So you might want to think about how many people you want to work with.
There are different crowdfunding sites, such as Kickstarter (Best Overall), Indiegogo, Patreon, GoFundMe, CircleUp. Tha Balancesmb has done a great job going into detail on these. See their article here.
3. Angel investors
These are usually high net worth individuals who have some money deliberately put together or put aside to fund different businesses. There are so many networks where you can find Angel Investors. A few examples include; Angel Capital Organization – Angel Capital Association, Angel List Venture, Angel Investment Network.
Angel investors are an amazing source of funding but remember, they are most probably going to expect a larger piece of your business. They will give you a little bit of pressure when it comes to working however, you are most probably going to benefit from this pressure as they will push you to do well.
Some of them have their own personal interests so you must look at the options carefully before you decide who to work with.
4. Venture Capital firm
They are like Angel investors but on the higher end. They are usually high net worth individuals who are willing to fund start-up businesses even if they haven’t gained any profits yet.
They are usually great if your business requires higher Capital For example; $1 Million for start-up businesses. It is very important to take into consideration this kind of arrangement before taking on this method.
Furthermore, it is very competitive since they are going to give you a lot of money which means you must prove that it’s going to work.
5. Business Grants
These are very interesting because, unlike loans, you don’t actually have to pay them back. Usually, governments issue grants for all sorts of reasons which means you can check with your government websites if they have any arrangements or grants available. Governments are eager to support and fund start-up businesses since in return their income comes from the taxes of these businesses.
It is important to note that some grants are only available to fund some aspects of the business and not the entire setup.
Funding by borrowing
It is very important to keep your finances in good order and to be on good terms with your bank because you might need them for funding. Whether you have credit ratings in your country or you have another system of verification, it is very important that you get to win their good books, just in case you need funding at some point.
If you don’t have a good relationship with your bank, you could also work with a family member (that you trust and has a good credit record) in order to apply for funding on your behalf. Most banks in your country will get you funds if you can prove that you are earning money and that you need to get a loan in order to earn more money.
2. Peer to peer lending
This is where different people or different companies join or put money together in order to lend it out for better returns. They are usually ready to lend this money out at almost bank rates. They usually have a faster funding and approval system compared to traditional bank loans. However, it is important to note that the interests may be higher compared to bank loans because of this.
Which method is right for me?
Borrowing and what that means?
Borrowing money means taking it from another party or financial institution. The borrowed money will be paid back in a given timeframe. The advantage to this is you will eventually own the business or gain rights to your business without having to share ownership with anyone.
Working with an investor and what that means?
This means working with investors to fund a certain business or idea. This is different because you are giving away part of your business for funding. You don’t have to pay back but there is an amount of pressure from most of these investors. But this can be an advantage because they will push you to do very well.