How to raise capital for your small business or startup company in Nigeria: Funding is a significant issue for businesses of all shapes and sizes in Nigeria and throughout the world. Finance is critical to the survival of any firm. Without sufficient cash flow, firms cannot acquire raw materials, transform them into completed products, market or distribute finished products, or even pay their staff.
As a result, numerous financial institutions have sprung up to service enterprises’ financial needs. Previously dominated by commercial banks, Nigeria’s financial services industry and company funding scene now include venture capital firms, private equity firms, fintech companies, and crowd funders. This demonstrates the industry’s maturity in the country and provides entrepreneurs and company managers with a diverse range of financing options for their firms.
Despite this progress, many firms, particularly startups and SMBs, continue to struggle to find sufficient cash to be viable – or simply to start. This is partly because these fund providers have implemented tough mechanisms to ensure that their limited funding is made available to organizations and invested in initiatives that supposedly offer the best returns.
Unfortunately, many companies, particularly SMEs, lack the capacity to scale beyond these impediments due to their frail structures and founders’ and operators’ managerial inexperience.
How to raise capital for your small business or startup company in Nigeria
The following are some tactics that early-stage entrepreneurs and business owners can use to increase the attractiveness of their businesses to funders and steps by steps methods on how to raise capital for your small business or startup company in Nigeria will be greatly discussed.
1. Create a business plan
The focus is on the word “write.” It is not sufficient to have your company plan in your thoughts; it must be written down. As we all know, remember information can get hazy over time.
This is avoided by writing it down and also makes it easier to fine-tune your thoughts and goals as needed.
2. Register your Business with CAC
Ensure that your business is registered with the Corporate Affairs Commission CAC and other appropriate authorities.
3. Establish a company checking account
Using a personal or private bank account to conduct business is one of the most prevalent business management offenses in Nigeria. Despite several government policies and commercial banks’ business-friendly account products designed to discourage this practice, many entrepreneurs continue to operate their enterprises through personal accounts, primarily to cheat taxes and, occasionally, for administrative ease. This will make it more difficult for investors to determine the health of your business since your corporate finances will get entwined with your personal finances.
4. Create an online presence for your business
Social media platforms are a means you can use to raise capital for your small business or startup company in Nigeria. To increase its reach and make it easier for your target audience to engage with you from any location on the planet.
5. Acquire some Financial Management Skills
It is very important to acquire sound accounting and financial management skills or engage an accountant or financial manager who possesses these abilities
The majority of early-stage entrepreneurs are jacks of all trades, doing a variety of roles while their businesses seek traction. Finance is a critical component of corporate management that cannot be taken lightly. To begin, investors will evaluate your business’s financial condition before contributing capital. A financial manager or accountant, or solid knowledge of financial management and accounting, will assist you in allocating financial resources in your business in the most profitable manner possible.
6. Appoint the appropriate co-founders and/or management team
If you are considering a large-scale investment, it is critical that you hire the correct management team. Investors want to know that your firm is greater than you and that it will continue to exist even if you exit.
Collaborate with co-founders or a management team whose abilities and experience complement yours. For instance, if you are skilled at software development but not at business management, find a co-founder who is.
7. Determine your precise financial requirement
Determining your precise financial requirements is one of the important factors you should consider when trying to raise capital for your small business or startup company in NigeriaThis can be accomplished by forecasting your business’s short-to-medium-term financial performance, a process known as financial forecasting.
8. Recognize the various sources of funding available
- Debt financing – When most entrepreneurs consider funding, they immediately think of debt financing. Debt capital is any money borrowed that must be repaid at a later date or interval, typically with interest. Commercial and microfinance banks are the most common providers. Debt financing is appropriate for organizations that have financial traction and collateral. It is not appropriate for start-ups or businesses with limited revenue or collateral.
- Equity financing – Equity financing is the process through which investors provide funds in exchange for a stake or share in your firm. It is more expensive than debt capital since it dilutes your ownership and compels you to provide regular financial returns to investors or shareholders (in the form of dividends). Angel investors, venture capital firms, private equity firms, and the stock market are all common sources of equity financing. It is primarily used by startups with high growth potential that require rapid scaling or by major enterprises that require expansion. It is not ideal for firms seeking gradual and steady growth.
- Hybrid financing – Hybrid financing, such as mezzanine financing, is a type of financing that combines loan and equity components. It is not as prevalent in Nigeria as debt or equity financing.
- Grants – While the majority of forms of funding need some form of repayment, you are not required to repay a grant or give up an interest in your firm in exchange for it. Typically, grants are made to businesses that are currently creating a positive social effect or are on their way to doing so.
9. Determine the most appropriate funding source or combination of funding sources
- Bootstrapping – The majority of firms begin by bootstrapping, which means supporting the business entirely with the entrepreneur’s personal income and savings, as well as contributions from family and friends. In the long run, this funding source cannot sustain a corporation with grandiose growth objectives.
- Partnership – In this arrangement, an entrepreneur who lacks sufficient cash forms a partnership with someone who provides the necessary funds in exchange for a stake in the business and/or a share of the profits generated. This technique carries a number of risks, including disagreements between partners regarding the business’s direction. As with bootstrapping, it is not sustainable when carried out informally.
- Commercial banks, microfinance banks, and merchant banks – These are the three most popular types of banks that provide debt capital to small businesses and startups in Nigeria and throughout the world.
Angel investors, venture capitalists, and private equity firms — Angel investors, venture capitalists, and private equity firms provide the majority of early-stage and growth-stage enterprises with formal equity funding. They are, however, extremely selective, often funding less than 10% of the businesses that apply for investment.
- Business incubators and startup accelerators – Business incubators assist entrepreneurs in refining their business ideas, plans, and models, whereas startup accelerators assist enterprises with a validated minimum viable products in rapidly scaling their operations. Both provide financial assistance during their intervention.
The stock market — Due to numerous rules, huge firms almost exclusively raise funds through the stock market.
- Crowdfunding – Crowdfunding is a method of obtaining funds for a business by having a large number of individuals donate a small amount of money, typically using crowdfunding sites such as GoFundMe and Indiegogo.
- Competitions for company ideas and business plans — Entering a business competition can be a smart way for organizations with game-changing, highly inventive, and impact-oriented solutions to raise funds, as the majority of business competitions offer financial rewards.
- Non-profit organizations and social development groups — Many of these organizations provide grants to enterprises in underserved communities and the green economy.
- The government — Federal and state governments occasionally offer low-interest loans and grants to promising enterprises in an attempt to promote the economy.
- Cryptocurrencies and decentralized finance – Entrepreneurs can also generate funding for their businesses by selling digital assets or tokens, a process known as an initial coin offering (ICO). However, the debate surrounding cryptocurrencies and decentralized finance, as well as regular government crackdowns, make it one of the riskiest forms of financing for enterprises.
- Advance Payment – You can fund your business by requiring customers to pay in advance for a service or product that you have not yet delivered and then using the money to provide or produce the service or product. This is the point at which your social capital becomes useful. Your consumers will be more receptive to paying you for a service they have not yet experienced if they can vouch for you and your brand has a positive track record and reputation.
10. Prepare a pitch deck or grant proposal
Once you’ve determined the best funding source or combination of funding sources for your firm, the next step in raising funds will be to create a pitch deck. A pitch deck is a succinct document that provides investors with an overview of your business. It is frequently presented as presentation material (such as Microsoft PowerPoint), but can also be a text-based document (like Microsoft Word). When applying for a grant, a grant proposal is an alternative to a pitch deck. If you are contacting a grant source, ensure that your grant submission highlights the social impact of your business strategy, product, or service. If you are approaching a venture capitalist, ensure that your pitch deck focuses on innovation and viability. If you’re contacting a bank, make certain to demonstrate a healthy cash flow and, if possible, the presence of collateral. And so forth.
11. Submit an application for funding
All that remains is for you to revise your pitch deck or grant proposal (ideally with the assistance of someone with experience in capital raising) and approach an investor with your financing request. Once you’ve determined the sort of financing your firm needs (debt, equity, hybrid, or grant), you can apply to as many financiers as feasible. However, verify that your application is customized for each one. This will allow you to cherry-pick if you receive many offers.
In Conclusion, the overall article has been able to discuss various methods that can help you to raise capital for your small business or startup company in Nigeria.