Welcome to Module 8 which will cover everything you need to know about capital! If you are just joining us, we recommend you start by completing Module 1: How to Write an Application 101, Module 2: Value Proposition, Module 3: Customers, Module 4: Target Market & Market Size, Module 5: Business Model, Module 6: Goal Setting, and Module 7: Revenue & Profit.

Overview

When we ask our AWEC entrepreneurs to share their biggest business challenges, access to capital is the most frequently cited challenge. Capital refers to the cash that is invested in a business. And while an influx of cash may seem useful, capital is not the solution to every business problem. If you decide to explore fundraising to address your business needs, it’s important to understand the different types of capital that are available (or not available) to you and how to pursue them. The right capital fit for your business is dependent upon many factors: your business model, your industry, your capital needs, your willingness to give up a portion of control, etc. Do your research BEFORE you begin securing funding to ensure that you are directing your energy toward the right potential funders.

Business Loans

• What is it? A small business loan allows you to retain full ownership of your business while borrowing a specific amount of money (with interest) for a set period of time.

• When should I pursue this type of funding? Business loans are a good option to serve as a bridge from Point A to Point B in your business. For example, if you are planning to introduce a new product or service, you may need additional capital to obtain raw materials or manufacturing equipment. Or if your business has seasonal ebbs and flows in its sales cycle, you may want to take out a business loan to ensure consistent operations during your busy season (if you need to invest in more products or labor) or during your slow season (to cover costs while revenue is down). In both cases, you are taking out a loan with the expectation that your revenue will increase in the future and you will be able to pay back the loan, plus interest.

• How do I pursue this type of funding? To explore this option, reach out to your local bank. It may be a good idea to shop around and explore other banking options as well to get the best possible interest rate. Note that it is extremely important to have well-maintained financial records when exploring loan opportunities, so ensure that your financial documents are up to date. 

• Angel Investors

• What is it? Angel investors invest small to medium-sized amounts of their own money in early-stage startups in exchange for a portion of ownership equity.

• When should I pursue this type of funding? Because angel investors are investing their own money (vs. money from a bank or other investors), they are often willing to take bigger risks. However, angel investors are still very focused on their return on investment, so you need to be 1) in a position to grow or scale your business rapidly, and 2) willing to give away partial ownership in exchange for funding. This is a good type of funding to pursue at an inflection point in your business, when you can point to specific ways an infusion of capital will help to fuel rapid growth.

• How do I pursue this type of funding? To explore this option, search online for Angel Networks within your local geographic area. These networks bring together a group of angel investors with a shared interest in supporting founders from a specific city, country or region, and their websites often provide information on how to share your pitch. You can also search your LinkedIn network for “Angel Investor” as many list this designation in their profiles. If you do not have a direct personal connection, see if you have a shared contact that could make an introduction.

• Accelerators/Incubators

• What is it? Accelerators and incubators provide entrepreneurs with programming over a set period of time and support in the form of mentorship and funding, often in exchange for a portion of ownership equity.

• When should I pursue this type of funding? While each accelerator and incubator has its own specific application criteria, a business increases its chances of acceptance when it has consistent revenue, traction (customers), and product-market fit (strong demand for its product). Participating in an accelerator or incubator is most useful for your business when you are interested in growing your network. It’s a helpful tool if you are getting ready to grow or scale, as it can provide access to knowledge and resources to help facilitate this growth.

• How do I pursue this type of funding? To explore this option, research accelerators and incubators in your local community (if you are interested in an in-person experience) or globally (if you are interested in a virtual experience). Some accelerators and incubators are organized by industry, while others are industry-agnostic, so you may want to begin your research with a specific industry focus to find the right fit. Briter Bridges’ African Tech Hub map is a good starting point, although please note that many of these opportunities are focused on businesses with a technology or platform element. 

• Venture Capital

• What is it? Venture capitalists (VCs) provide funding to scalable businesses in exchange for a portion of ownership equity (and oftentimes, a seat on the board). Unlike angel investors, venture capitalists are investing other people’s money, which they hold in a fund that they are responsible for managing. Check sizes vary but are typically on the larger size, and VCs conduct thorough due diligence to fully understand your business before investing.

• When should I pursue this type of funding?  Because venture capitalists are investing money on behalf of other people and institutions, they are looking for an outsized (read: massive) return on investment. Your business needs to be performing well, with strong revenue and traction, and on track to scale rapidly in order to attract venture capital funding. Often (but not always), this means your business needs to be tech-enabled, as technology is the fastest way to scale. You also need to be willing to give up partial ownership in order to pursue VC funding.

• How do I pursue this type of funding? To explore this option, it’s important to first understand what stage your business fits into (likely pre-seed or seed) and then research VCs who focus on that stage. Online resources such as Crunchbase (free trial available), VC4A (free sign up for entrepreneurs) and Briter Bridges (free sign up to access their investor catalogue) have directories of African venture capitalists. Another great approach is to look at media coverage of well-known African companies, as those who have received funding often publicize their lists of funders. Social media can be a great tool, too - many VCs are active on Twitter, which can be a great place to learn about their interests, deals, and funding priorities. The most important thing to remember here is that you must do your research - VCs receive lots of requests, and you have a greater likelihood of response if you are reaching out to the right people.

• Grants

• What is it? Grantmaking organizations (foundations, corporations, governmental initiatives, etc.) provide funding, often through a competitive application process. Although there is no ownership equity requirement, there are often strict eligibility criteria and reporting requirements.

• When should I pursue this type of funding? While grants are typically associated with non-profit organizations, there are many grants available to all types of organizations for different purposes. This is a great option to pursue if you are looking to fund a specific project (vs. ongoing operating costs) and need additional capital to get it up and running. While there are no ownership requirements associated with grants, there is often lots of upfront paperwork and follow-up reporting involved, so you will need to have strong documentation in place.

• How do I pursue this type of funding? To explore this option, research grantmaking organizations whose missions align with your business concept. One of the best ways to determine which grantmakers’ funding priorities align with your organization is by reviewing the annual reports of similar organizations. If you haven’t already, now is a great time to conduct a thorough competitive analysis to understand what other organizations are operating in a similar space, and in the process, you can review their annual reports and make a list of where they have secured funding. Then, you can do further research on each of these grantmakers to determine whether your business falls within their funding priorities. Start by exploring local options and expand to include national and global funders as well.

• Crowdfunding

• What is it? Crowdfunding uses your social media network to raise small amounts of funding from as many people as possible. 

• When should I pursue this type of funding? Crowdfunding relies on having a large network to share your campaign with, so it helps to have a strong customer base or a personal social network you feel comfortable approaching for support. Crowdfunding campaigns are most compelling when you ask for support for something specific and time-sensitive - a new product launch, a new piece of equipment that will help streamline production, a larger office - and you can tie the importance of this purchase to the long-term growth and success of your business. 

• How do I pursue this type of funding? To explore this option, think about the reach of your network (do you have a large enough social media following to achieve your fundraising goal?) and research different crowdfunding platforms such as Indiegogo, Seedinvest, Mightycause, StartEngine, GoFundMe, and Patreon to determine which platform best fits your business.

AWEC is an experiential, applied learning program, which means we promote business growth by having fellows immediately apply what they learn to their own business. We have created the following tools to help you apply the knowledge from this module to your business. We encourage you to download the tools below to strengthen your application AND your business!

Well done to you for completing your eighth module. You can now move on to Module 9: Challenges