Which type of funding is right for you?
Not every funding opportunity is suitable for your business/idea, you need to be sure of the right category before approaching investor or write any application. In this module, you will be briefed about
- Is your business idea validated (or still just an idea in your head)?
- Do you have a defined target market?
- Do you the right team members
Mistakes we make sometimes is seeking for 1 million USD for a project or idea that has no traction, nobody will give u that kind of money. Learn to start small and seek for little little fund to gain certain traction before moving higher
Also note, you can raise any capital for your business, so far it’s attractive to investors. Don’t have it in mind that my business can never attract funding, it sure can, you just have to do it the right way
Be ready to sell your business ideas to an investor. Those that have raised capital for their businesses have to literarily sell their ideas.
Also, to raise fund succefully, you have to get used to ‘sorry, you applications is rejected”
95% of funding applications get rejected. As an entrepreneur, what this means is you have to keep trying, that doesn’t mean your business idea is rubbish, you have to keep trying and keep improving on the business/idea
Just always note the feedback given to you when you application is rejected and work on it
Let me shed some light on why u can be sure your business idea will get funding
If your business idea contains any of the below points, you can be sure to get funding, sooner or later
- Social Impact: By social impacts, it means your business idea is improving life in a way, especially in a conspicuous way. It might be in terms of healthy living, safe environment, employment etc. There are many organizations, foundations, government agencies out there that are looking for businesses that are making positive impact in their society. If your business has high social impact, be on the lookout for this kind of opportunity, however, if it’s otherwise, don’t start competing with such businesses, you will be wasting most of your time, there are other opportunities that are not so bent on social impact. Always check the requirement before applying for any funding
- Innovations: There are certain investment funding that are very much keen on innovations, they are looking for something new, something genius, something extra-ordinary. By innovation, you don’t have to create something entirely new, it can be an improvement on an existing business model that will disrupt the market. Think of Air BnB, Uber etc, they have disrupted the market with a simple but innovative solution.If you idea is innovative, watch-out for the right opportunity and be sure of getting fund sooner or later
- Profit: Venture capitalist, angel investors, banks etc are looking for businesses that can demonstrate high profitability. Those people/orgainzation can’t make money without giving out their money. If you can prove to them that your business can make them money, they are ready to fund you
Categorizing your business right for funding
This will answer the main question in this module, which funding type is right for you
To attract the right funding, you have to know the stage of your business. In funding application, they usually specify the business stage they are expecting to apply. Investors will always ask you, what’s the stage of your business
A lot of entrepreneurs mix this up, but right now, i will clarify it
There are four (some categorise as five) main stages or categories of businesses
- Idea or Pre-startup Stage (the needed fund, seed funding): In this stage, your business is still an idea stage, it is not in the market yet. you have just the idea or prototype. This means you have no customer yet. What is expected of you in this stage is gather all the information needed about your business from idea validation, idea development to market sizing, to gathering the right team. Companiess/investor that are looking for this pre-startups won’t give you any money unless you can demonstrate the full knowledge of the above. The kind of funding given at this stage is seed funding
- Startup: Here, you have entered the market, make few sales have some customers. You are of course in survival mode and still testing the market. Your company at this stage will be facing what is called teething problem. Funding needed at the stage is mainly Operating expenses (like marketing, salaries etc)
- Growth Stage: In this stage, You have an established market, you have a good traction, you are at the point of expansion. At the stage, perhaps u need more offices or more machines, in short you want to scale up.
- Maturity: The businesses here are well established, brand well known, steady growth rate, loyal customer base. Businesses here want to enter new market or have new products or enter a new country. Busineses like this seek millions of dollars in funding
Before applying for any funding, first know which stage you are and seek information about the funding opportunity you see if they will support your business stage (it is always stated in the application or their website). This is very key to limit rejections
In summary to get funding,
- Know the value proposition of your business, impact, innovations, technology, purely profit or something else
- Which stage are you, pre-startup, startup, grrowth or maturity?
Parting note, when you need seed fund, don’t be out seeking for N30,000,000, nobody will give, if you need money to develop you idea, look out for small funding dedicated for businesses in seed stage. The higher you go, the higher your chances of raising better fund
Bonus: What is traction?
If I intend starting a business. I validated my business idea, develop my MVP (Minimum Viable Product), and get some people to buy, they can be friends, that’s traction
Traction is something trackable in your business, from your garage to an office, or from Ibadan to Lagos, from 20,000 monthly to 1,000,000 a month, from friends and family customers to totally strange customers. Hope it’s clear
Traction is any sign that your business is “growing”. And I mean it very vaguely.
There are different ways to measure traction and here are 5 major metrics (identifiers) that are measured to show traction.
- Enquiries (how many people have tried to even ask about your service or product).
- Social media engagement