Startup Digest: Who is the appropriate investor and what are the tips to getting sufficient funding?

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Someone once said raising money is simple but not easy. First time entrepreneurs will tell you this for sure. Better known as startups, these entities find it almost impossible to raise funds for the company’s growth whether the company is introducing a new product, expanding operations or forming a capital upgrade on equipment to help lower production costs.

First, determining the appropriate type of investor is very involving for startups. Different enterprises need different investors according to the business model and strategy. some of these investors are;

Angel investors; who in most cases may just want a percentage of return on his investment or may ask for partial ownership.

Peer-To-Peer Lending; This is mostly virtual funding where small business owners come together with investors online. The entrepreneur and the lender negotiate an interest rate for the investment in return of funding.

Venture capitalists; This kind of capitalists get involved in companies that have already shown history of returns. The venture capitalist rarely gets involved in risky start-up companies and in most cases their interest is revoked by deals worth several millions of dollars.

Banks;  Financial institutions require the entrepreneur to describe his/her business and present a business plan  for them to decide whether or not they will invest in the enterprise.

Personal investors; This might be the safest of all where friends and family with means may come in as investors. However, the contract will involve the size of investment, the rate of return and any ownership that may be part of the agreement.

As it is, these investors may be confusing for first time business owners looking to get funding. According to VC4Africa an African platform for start-up funding, start-ups  also need tips to raise these money and here are some of which they should consider when applying for funding at VC4Africa. Note: These tips could apply in other funding platforms strategically.

Prepare your resume

Before your venture is put into fundraising mode, it is important to post documents to your venture profile. This gives investors an opportunity to do a first assessment of your business and is required as part of your fundraising application. Before a fundraising request is approved, you need to upload a copy of your Chamber of Commerce registration or certificate of incorporation, a business plan and sound financial projections. To improve your chances, add Letters of Intent from strategic partners, or contracts with existing customers.

Also make sure to add team members and advisors to your team page and complete the Quick Scan. These tabs help investors see who is part of your team and understand how far you are in building the business. Some investors back early stage companies while others focus on growth stage. These tools improve your chances of meeting the right investors.

Register your intention

Given the results of the VC4Africa Quick Scan, the next step is to register your intention to raise a round of funding. On the right hand side of your venture profile you’ll find a heading “Fundraising”. Under this heading, click the red button “get started” to apply to go into fundraising mode on VC4Africa. You need to indicate the financing stage – Seed, Start-up, 1st round (Series A), 2nd round (Working cap), 3rd round (Mezzanine) and 4th round (Bridge).

You also need to indicate the financing type – Equity, Debt or Hybrid and your capital needs (between USD $10,000 and USD $1 million). Your registered intention is reviewed by the VC4Africa team. Once approved, your venture is added to the list of ventures fundraising on VC4Africa.  The next step is to garner investor interest and secure a lead investor. Post updates and progress to your venture profile showing you are on your way to achieve the milestones indicated in your documentation. Investors who are interested in your work can express their interest to join as a possible lead investor.

Raising capital

Once a lead investor is secured, the venture can go into “Raising Capital Mode” for 90 days. At this stage, investors registered on VC4Africa can review the term sheet and express their interest to participate. They can outline how they plan to contribute in non-financial ways and any terms or conditions they might have as part of their participation. The amount of capital pledged by each investor will appear in the progress bar indicating your venture finance goal. At the end of the 90 day period, copies of these pledges are sent to the entrepreneur and lead investor.

Closing the deal

At the end of the 90 day period it’s time to close the deal. You will receive copies of the registered intentions and can follow up with the lead investor to close the financing round. Once completed, the venture is put back into building mode. Update your network on progress and make sure you maintain the foundations needed to raise additional capital in the future

 

 

 

 

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Winfred Kuria
Winfred Kuria is a self-constituted web content writer in charge of Tech News and Events Publicity at Kachwanya.com. She will communicate in the simplest way possible with an aim of changing the world one mind at a time.
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