Financial options to consider for your startup capital

Did you know that 70 to 80 per cent of African businesses fail within the first five years? According to Statista.com, the average startup failure rate in Africa has been 54 per cent during the past four years.

This is alarming since the United Nations forecasts that Africa will become the next global commercial frontier in the next 20 years. The rate of failure varies across nations. In Ethiopia and Rwanda, 75 per cent of firms failed, whereas Kenyan startups failed at a rate of 24 per cent during the same time. Access to finance and cash flow are the most significant contributors to the collapse.

A substantial portion of businesses in Africa struggle or fail due to insufficient capital. This can hinder growth, limit investment in essential resources, and make it difficult for businesses to weather economic challenges or unexpected expenses.

When looking to raise capital for your business, multiple options can be available. The most common is bootstrapping from your savings. This involves relying on personal funds or profits to finance the activities of the business.

By starting with your resources, you can maintain control over your business and avoid taking on debt or outside investors. Bootstrapping requires careful financial planning and discipline, but it can be a rewarding and sustainable way to grow your business.

Equity financing is an option that startups can consider. Investors purchase a portion of ownership and decision-making control of your company in exchange for funding. Opting for equity financing can be a fruitful approach to obtaining the funds needed for business expansion without the burden of additional debt.

By bringing in investors, you gain access to capital and benefit from their expertise and network. It’s crucial to consider the terms of the investment agreement to ensure that it aligns with your long-term goals and vision for the company. This can involve angel investors, venture capitalists, or crowdfunding platforms.

It’s vital to consider the merits and demerits of the options. Angel investors and venture capitalists can offer not only financial support but also valuable knowledge and networking opportunities. While angel investors are individuals, venture capitalists are companies that invest larger sums of money for a share of ownership in promising startups. They usually seek out companies with significant potential for growth.

Crowdfunding platform options offer a way to raise funds from a large pool of individual investors. Platforms like Kickstarter, republic and GoFundMe allow you to raise funds from many people in exchange for rewards, equity, or pre-purchase of products.

Another option is debt financing, which involves taking loans from banks or other financial institutions that must be repaid with interest. You can take advantage of this opportunity to build your credit score.

There are alternative funding sources, such as grants, government programmes, and accelerators, that can provide capital without giving up ownership or incurring debt.

These sources can be a successful option for startups and small businesses looking to grow without taking on the risks associated with traditional loans. Grants can provide non-dilutive funding that doesn’t need to be paid back, while government programmes can offer financial assistance and resources to help businesses succeed.

Accelerators can also provide funding, mentorship, and networking opportunities to help startups scale quickly. This support accelerates growth and helps startups maintain autonomy and adaptability in their decision-making processes.

Other options include corporate partnerships, friends, and family.

By exploring and leveraging these options, businesses can access the capital they need to thrive while maintaining control and flexibility in their operations and position themselves for long-term success in a competitive market.

It is crucial to carefully consider the pros and cons of each option and determine which aligns best with your business goals and financial needs to successfully secure the necessary resources for growth and expansion.

- The writer is an Innovations Evangelist and a PhD Candidate