I always say that small businesses in Nigeria need additional finance at key points in different business developmental stages and that also applies to startup companies. Raising funds and capital to grow to the next level is the major explanation for why small business owners look for investors.
Securing any investment either in person or through online platforms boosts your business decisions and helps you hire smart brains. There are people out there who are happy about new products and want to invest funds to new any new startup to see these products in the market and this helps you put your brand in front of a larger audience.
I have witnessed small business owners in Nigeria, who have invested their private funds as well as resources, and in the startup process, they ran out of money. The next question they ask is how they will raise extra funds.
6 Ways to Find Investors for Your New Business
Seeking investment for your business means you must have completed the drafting of your business plan, and you seem to have reached a stage in which you need financing to make your dream come true. These are the types of investors:
1. Crowdfunding Investors
Let us assume that your company produces a certain product that is delivered to sellers or business partners, and it happens that you have passed the past the lab or prototype stage on a new product are are out of funds. Crowdfunding investors then step in and invest in your company in exchange for that product. It is like payment in advance, Crowd funders don’t have any interest in being shareholders, all they need is the early access and delivery of your new product.
2. Family and Friends
I can tell that not everyone is interested in going through the hectic processes required with other investment types. This is where family and friends come in, unlike bank loans, family and friends are ready to get you money upfront, and you don’t always have to worry about paying interest. These are people you can just reach through phone calls, text messages, or even invite them over for a presentation through email.
I always explain that it is foolish to forget to create a written contract by which you state the terms and conditions involved in the funding. Though with family and friends, there are not always criteria or costs attached in the process, keep in mind that this is still a business investment. They can also sometimes request a stake in the company or even some decision-making power. During the presentation, ensure you pitch your idea well with a well-tailored business plan. Let them know when they can expect any return on investments.
3. Small Business Loans
When you’re seeking funding in Nigeria, your local bank is the obvious best option and first port of call. A bank loan is offered by financial banking institutions and please remember it comes with a set interest rate. You’re more likely to be successful in the loan request if your business has extensive financial details and all paperwork is perfect. Your business will need to provide a credit history or proof of income if you don’t have any credit history.
4. Small Business Grants
I have come across many variety of government and nonprofit grants in Africa. The categories are usually different per class such as entrepreneurs, startups, or small businesses. These categories affect how much you can get. All you need to do is a good business plan stating your business model, stakeholders and their roles, and your future goals. With funding through grants, you don’t need to worry about relinquishing some control of your company or being forced to join weird associations or groups.
5. Angel Investors
Angel investors are people who invest their own money in your early-stage business to help it grow to see your company succeed. Angel investors don’t care about owning parts of your company, they are usually wealthy individuals who are also professional investors. They invest their own money and usually look for investment opportunities in the early stages of a business. Don’t forget that like other investors they are also looking for growth and expect good returns on their investment.
6. Venture Capital Firms
Venture capitalists aren’t affiliated with any group, they are simply private investors though they can also impose a variety of requirements in the process of funding like equity or a board role, collection of interest, or payout in exchange for their investment and they also have a say in the decisions of your business.
Frequently Asked Questions
Who is a Business investor?
A business investor is a person or an entity that seeks to commit money to a business with the potential for huge growth with the expectation of making a profit. Business investors sometimes try to support your business to the point where it can go public.
What are Crowdfunding websites?
Crowdfunding websites are online platforms or forums that help new or old entrepreneurs raise money. Individuals and companies can run crowdfunding campaigns that aim to attract multiple investors on these websites and online forums.
What is the downside of a business loan?
You don’t need a business loan until your business is ready to expand. The main downside of a business loan is that you’ll be paying back in installments, even if your business performs badly, and don’t forget the interest.
What do potential venture capitalists search for in a business?
venture capitalists usually look for businesses with growth potential. Venture capitalists are interested in businesses that are quickly growing and in a high-demand market like in the tech sector.
Do venture capitalists invest more funds than angel investors?
Yes. The amounts invested by venture capitalists are usually higher than that of angel investors. When venture capitalists invest in your company, it usually is in millions of dollars.