A big topic for Entrepreneurs is Funding!
You’ll be surprised to know that not every entrepreneur needs external investors or equity financing – the type of funding that StartupCircles.AI and Enygma Ventures offers.
There are actually a range of funding options available. Here is our quick guide to the different types of financing or funding available, and when to consider them.
- Personal savings/surplus income from a job
This is a good place to for early stage entrepreneurs at the pre-startup or startup phase. It shows others that you believe in your idea enough to put your own hard earned money into it. It is termed as “having some of your own skin in the game” (in startup and investor language).
- Family and friends
Yes – they can be a key source especially at the pre-startup and startup phases! This can be by investing in your business, lending to your business, being your initial customers or sales force/team.
They can also put a roof over your head as you start your hustle, but don’t let them down if they do!
- Customers / Sales
Your customers are the best source of financing. Sales, sales, sales! Most businesses we come across don’t have a funding problem but a sales problem. Increase your sales, increase your finances.
This is financing that can be applied for from various government/public benefit/ philanthropic organisations at “zero” cost with no expectations of financial returns. However, most grants come with conditions for who/what kind of business can apply, what impact they expect to see and application and reporting requirements.
There are different types of debt. Debt can include overdraft, credit cards, micro-loans, order financing, invoice discounting, longer term loans, asset leasing etc. What kind of debt you get should be according to need. Every loan will have terms for how much interest you will be expected to pay on top of what you borrow. Understand the terms and aim to weigh up the pros and cons.
This is financing that is given to your business in exchange for shareholding.
There are different types of equity investors- Angel investors (individuals who invest early stage), Venture capitalists (institutional investors who typically invest early stage and growth stage) and Private equity investors (institutional investors who typically invest in the growth stage +).
You often have one-shot to grab investors’ attention, be it via email or an in person meeting.
Use that time wisely by first reading up on all the options available and assessing what you need, before you ask for funding! Stay tuned to the next post.
Written by Lelemba Phiri
Lelemba Phiri is an award-winning educator, writer, keynote speaker and gender-lens angel investor. She is the Principal at the Africa Trust Group that takes a holistic approach to investing in early stage women.