To raise or not to raise capital for startups is a topic that is discussed every so often. However, the big question is not whether startups need to raise funds; it is about when they should raise funds.
Over the past four years, my company, The Soho Loft Media Group, has organised hundreds of events, bringing angel investors and venture capitalists on panels to discuss the kinds of deals they want to see and fund.
Here are some useful tips on raising capital for startups:
Related: Delivering an Elevator Pitch
Pitching your business idea is an ongoing process
As a startup, you are always going to be raising capital. Learning how to pitch successfully is important and pitching as often as possible increases your chances of raising more capital for your business.
If you go after capital investment from investors, you are going to be raising more capital for your business venture.
Practice your pitch or get someone who is really good at it
To raise money as an entrepreneur, practice your pitch. If you cannot do it well, find a friend who is really good at it to work with you.
Go for companies and leaders who have previously raised money because they have an understanding of what it takes to raise money. They also have relationships with investors who trust them.
Start off with a newsletter
If you are an entrepreneur who is just starting out, I suggest you start with a newsletter right away and build rapport with investors over time. Though you might not be ready to pitch your business idea to them as yet, using a newsletter will keep them informed about your existence and progress.
When you are ready to pitch your project for purposes of raising capital, your newsletters will have done due diligence in furthering your efforts to potential investors for six months, a year or even longer.
Share appropriate information and be consistent
The information you put in the newsletter should be appropriate and relevant to the potential investors you seek to partner with.
I am currently advising a startup entrepreneur on how to position her business for a year. I want to see how she is handling the business and how she grows it.
Investors will want to know how you deal with situations and sharing such information consistently over a period of six months to one year will build their confidence in your business venture.
As a result, they will be willing to open up their wallets and give you money, because you have consistently shown them that you deliver on your promises.
Related: Pitching a Venture Capitalist
It is extremely important to have an advisory board whose primary goal is to help you raise money.
Pick a group of six people who are willing to help you to the best of their abilities in raising funds.
Hold meetings with them and help them understand from the onset that you are picking them as your board of advisors. Give them tasks around fundraising that you think are most important to you.
Participate in capital events
Another way to improve your skills, besides finding somebody to help you, would be to attend angel and capital events where you can pitch face to face with potential investors.
A crucial thing to do is to research the event before you attend to know who exactly you want to meet and who you want to pitch your project to. Also, do the elevator pitch or get someone to pitch for you.
The time to raise capital is now; it is a continuous process that never ends. Raising capital is a strategy that involves nurturing relationships that you already have on an ongoing basis and allowing them to grow to an extent such that you can call them up when you need them.
This article was originally posted here on Entrepreneur.com.
Alternative Finance – Filling The Gap
Alternative Finance is finance beyond the traditional – it is defined by the financiers’ area of specialisation – by what they specialise in, whom they serve, and how they provide their funding.
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Alternative Finance is finance beyond the traditional – it is defined by the financiers’ area of specialisation – by what they specialise in, whom they serve, and how they provide their funding. It does not replace traditional finance but rather functions as a complementary and additional form of funding.
Alternative financers are specialists – they focus on a particular need and on a specific audience. As a result their ‘how’ is customised to deal with their chosen target market and for this targets unique needs. This applies to the funder’s processes and to their level of flexibility around things such as collateral. An example of this is that a SME may have an existing R1 million overdraft (their traditional finance) secured by R 1.5 million collateral but suddenly they need R5 million for some kind of contract or bridging finance – they need it fast and don’t have that extent of collateral.
The traditional funder cannot provide what they need, their process is too long and their flexibility is too low. An alternative financier providing bridging finance and specialising in SMEs is ideally positioned to fill this gap.
One of the most significant differences between a traditional funder and an alternative financier is in their process. In the case of the alternative financier, they have often chosen to deal exclusively with a particular customer base, for example SMEs. As a result, this funder has both an affinity and contextually relevant empathy in working with SMEs.
Not only do they speak the same language the funder also has an appreciation for the time and material constraints of the SME and has developed their processes to cater to this market. This applies most notably to the turnaround time of the funding need and to the assessment aspect – where flexibility around things such as collateral is vital in making the finance happen for the SME.
A traditional funder is unable to meet the deadline of a bridging finance need, submitted on an urgent basis, where the finance is needed as soon as 2-3 days from time of application. A specialised or alternative funder is able to do exactly this. A traditional funder is also unable to find creative methods in solving the SMEs lack of high-value collateral in applying for finance.
This SME has generally already used their high-value collateral for traditional credit facilities but now needs funding for growth or resolution of a temporary cash flow challenge. An alternative financier is able to look at such an application in a different way, and has most likely already established alternative ways to make this happen for the SME.
CrowdFunding As E-commerce In South Africa
Crowdfunding is the new bank loan, without the pressures of repayments. This is why you should look into crowdfunding your ecommerce business in South Africa – from our experts.
“Crowdfunding is the new bank loan, without the pressures of repayments. Crowdfunding is an online method of fundraising that allows people all over the world to put their ideas or pitches onto a digital platform. These pitches are then available for people worldwide to see, and to decide whether or not they would like to support the campaign. There are four main types of crowdfunding: Rewards-based, donation-based, equity-based, and debt-based, each with its own unique purpose,” says Nicholas Dilley of South African crowdfunding platform Thundafund.
“In South Africa, crowdfunding is still a relatively new concept and with many South Africans sceptical about making online transactions, it’s very much a rising industry. Rewards-based crowdfunding has become a growing force. Thundafund is the brainchild of entrepreneur Patrick Schofield, who founded the company in 2013. The way that rewards-based crowdfunding differs from any other form, is that in exchange for the money raised, the project creator is expected to give something back to the backer in the form of a reward. These rewards can vary, anything from a thank you card to a tangible product. However, when selecting rewards for your campaign, it is important that you keep your project and potential backer in mind.”
In 2017 alone, Thundafund raised more than R8 million, which was almost equivalent to the previous four years combined.
“In South Africa, we say that, realistically, you can expect a maximum of R150 000 in crowdfunding. However, we are constantly being surprised. It really comes down to how amazing your project is, how big the network is, and if the rewards are what people want. There is no reason to believe that any start-up couldn’t raise over R1 million if founders put the work in and justify how the money will be spent,” says Nicholas.
The rising of Sugarbird Gin
One of Thundafund’s biggest recent success stories was Sugarbird Gin, which managed to raise R1 086 973. The gin is an idea conceived of by a four-person company called Steel Cut Spirits.
“As a company, we care about crafted products that have a story and an ability to excite, inspire and bring people together. We also have a proudly South African desire to put our produce on the global map, and an interest in great local gins that can use fynbos to create amazing flavours,” says Steel Cut Spirits CEO, Rob Heyns.
Despite having already had success in the industry, Rob and his co-founders identified crowdfunding as one of the best ways to bring Sugarbird Gin to the market.
“All FMCG products face the three-part challenge of competition, barriers to scale and working capital constraints. The model of rewards-based crowdfunding addresses all three of these challenges at the same time,” says Rob.
“By launching via a crowdfunding campaign, we were able to stand out from many other products on the market, and involve our new friends and fans in our ongoing mission at the same time.
“We were able to operate at scale from day one by consolidating these first orders and thus produce great gins at a better price by working with the volumes of more established gin companies. We were also able to access funds upfront before producing batches, which provided the cash flow needed to grow quickly. There are very few better ways than crowdfunding to test a concept, solve cash flow issues, scale to proper production from day one and stand out from the competition. When I decided to go ahead, I studied crowdfunding thoroughly for two months while ensuring that our team had the required skillset to be able to execute.”
With the crowdfunding of Sugarbird Gin, Steel Cut Sprits decided to treat the campaign like the online selling of a product.
“Rewards-based crowdfunding is essentially a form of e-commerce, as you are selling products or services, so we approached it from the angle of an e-commerce campaign. Your product and marketing thus need to be spot on. We employed an evolving product strategy of refining our offers based on sales feedback before and during the campaign. We also applied a plethora of online marketing strategies, including audio-visual, digital marketing, social media, PR and even direct selling to large potential backers,” says Rob.
Nicholas agrees that crowdfunding needs to be approached in a professional manner. Most people will judge your business purely on your crowdfunding campaign and its funding page.
“Businesses and start-ups must have campaigns that appear very professional. The campaign should also be viewed as a marketing exercise that will allow the entrepreneur to test his or her product in the real world and receive feedback. Doing fun activations, like launch parties and events can also be a great way to get the word out there about your project and brand.”
SAB Transforms Supply Chains
Supplier Development Programmes grow black-owned suppliers and create jobs.
The South African Breweries (SAB) has invested more than R200 million into creating an inclusive supply chain that incorporates black-owned and black women-owned SMEs through its supplier development programmes, SAB Accelerator and SAB Thrive. In addition, more than 100 jobs have been created through these efforts.
SAB Accelerator and SAB Thrive aim to create a diversified and inclusive supply chain by supporting the growth of black-owned suppliers through business development support and funding. The programmes are two of four entrepreneurship development programmes run by SAB to help create 10 000 jobs in South Africa by 2022 — SAB KickStart, SAB Foundation, SAB Accelerator and SAB Thrive.
SAB’s agriculture programmes also contribute towards the aim to create jobs by growing emerging farmers.
“From rural entrepreneurs to big business, SAB has laid the foundation to support entrepreneurs and to contribute towards government’s efforts to grow the economy and reduce unemployment in the country,” says Ricardo Tadeu, Zone President, SAB and AB InBev Africa.
“We recognise that one of the major hurdles for SMEs in South Africa is the ability to gain entry into big business and form part of their supply chains. This requires a symbiotic relationship with big business working alongside smaller suppliers.”
SAB Accelerator and SAB Thrive cohesively solve the challenges of creating a healthy pipeline of suppliers that represent the demographics of the country. SAB Accelerator has piloted ten businesses that have created 29 permanent and 79 part-time jobs in a period of just six months, and is currently incubating 24 businesses as part of the official post-pilot intake. SAB Thrive has invested R100 million in seven businesses, which have created 46 new jobs. In addition, the programme has contributed R140 million in new B-BBEE preferential spend.
The SAB Accelerator is an in-house programme dedicated to developing black-owned and black women-owned suppliers. Geared towards fast-tracking participants’ growth, the programme employs ten highly experienced business coaches and ten engineers, offering both tailored business and deep technical coaching to the participants.
It has a three-phased approach consisting of:
- Diagnostic: Screening the business’s current situation and systematically identifying gaps and opportunities for growth.
- Catalyst: Proposing an intensive three-month coaching intervention addressing key business functional and technical areas of improvement or growth.
- Amplify: Providing additional business development to support graduates of the Catalyst Programme.
The SAB Accelerator strongly focuses on enhancing market visibility and access of its participants.
- Existing black-owned or black woman-owned suppliers currently servicing SAB’s supply chain at the time of application.
- Existing black-owned or black women-owned businesses that have potential to join the SAB supply chain based on their product or service.
The SAB Thrive fund is an enterprise and supplier development (E&SD) fund set up to transform the company’s supplier base. The fund was established in partnership with the Awethu Project, a black private equity fund manager and SME investment company. The aim is to invest in and transform SAB suppliers to represent our country’s demographics. SAB Thrive investees benefit from 100% black equity capital and business support.
The fund invests growth equity capital into SAB’s existing high-growth black-owned suppliers, furthering their profitable expansion into the SAB supply chain without diluting the black-ownership of these businesses.
Existing white-owned suppliers are provided equity capital to support the enhancement of their black ownership, while facilitating the introduction of black entrepreneurs to their business. The intention is to apprentice the individual to take over the business in the near future.
- Black-owned suppliers in the SAB supply chain that want to grow their business through access to black-owned growth equity capital.
- Existing white-owned suppliers in the SAB supply chain that want to transform their B-BBEE ownership.
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