Business Insider Edition
By BI Africa Contributor: Chinecherem Nduka
Building the business you want is difficult or almost impossible if you can’t raise money. In addition to establishing a sound business plan, new and intending entrepreneurs have to find the financial resources to grow their businesses, and in Africa, the problem of securing funding can be one of the biggest challenges.
This article discusses 7(seven) proven ways Africans can raise money to fund their business. Let’s dive in.
1. Personal financing
The first step to funding is, more often than not, investing your own money. When you have done that yourself, it is often easier to convince others to invest in your business. Friends and family, investors, banks and other financial institutions would likely invest in your business when you can show them how far you’ve grown the business with your own money.
Personal financing might not always be enough, but it makes it easier to attract more funding.
Bootstrapping is like funding your business from the inside. In some cases, bootstrapping is another way to prove that the business can be profitable. In situations like this, the business is structured to fund itself. As the business grows, it generates cash that enables further growth.
3. Friends and Family
Friends and family are often the first to believe in us, and in most cases, without any proof of our work first. At the same time, they are usually willing to invest in us before any other entity. They can therefore be a good source of funding. The downside is that not all businesses succeed, and f your business fails to earn profits, you may ruin the relationship. Be sure that your investors understand the risks involved in funding your business before you take their money.
Access to funds is a challenge for African businesses. However, some funding opportunities are still available for African entrepreneurs in the form of grants. Some of the funding opportunities that exist in Africa in the form of grants include;
Today, several online investor groups allow startups to pitch their ideas to investors around the world. When an idea is successful enough to attract multiple investors, several people will be eager to fund the idea. This is called crowdfunding.
Some platforms that provide crowdfunding in Africa include;
The crowdfunding industry in Africa is estimated to grow at a rate of 300% per year, reaching $96 billion by 2025.
6. Angel Investors and Venture capitalists
Venture Capital firms provide early-stage funding and typically make relatively large investments, often taking a significant share of the company. On the other hand, angel investors are typically high-net-worth individuals or at least middle-class, willing to invest in businesses individually or by combining forces.
Here’s a list of some venture capitalists’ platforms in Africa;
It is important to note that the viability of various funding vehicles may change over time as the economic climate shifts. Regardless the window of opportunity is always open for African entrepreneurs to access funding. Also, Capital needs for a growing business at different stages and in different states vary widely, depending on the funding vehicles used. It is important to evaluate your options carefully before making a decision.
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