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10 ways to raise money for a startup.

As a startup founder, you face a lot of different obstacles. You’re attempting to succeed where 90% of others fail. No matter how capable you are, you’re probably not going to be able to do it alone — sooner or later, you’ll need to start looking for outside sources of capital to help your startup progress beyond just an idea.

But, funding a startup is easier said than done. There’s more than one way to do it, and choosing the best method (or combination of methods) for your situation is essential. To help you determine which methods are right for you, we’ve put together this list of 12 different ways to raise money for your startup.

Why Is Raising Capital Important?

To begin with, let's clarify something: the term "capital" shouldn't be intimidating. Raising capital simply means obtaining funds for your business, which is similar to fundraising for any other purpose. However, in the startup world, we have specialized channels for raising substantial amounts of money for business ventures.

Regardless of how you label it, raising funds is typically an essential step in the startup journey. If this is your first venture, it's natural to feel overwhelmed. The early stages of a startup are filled with uncertainty, and sadly, many startups fail due to a lack of financial resources rather than a flawed idea. Seeking additional sources of capital is crucial to ensure your startup has sufficient funding to navigate the challenging initial development phase.

Moreover, securing startup funding enables faster business scaling. Launching a startup is a demanding endeavor, requiring considerable time and dedication to achieve results. By obtaining the necessary capital early on, preferably before it becomes an urgent need, you can accelerate growth and maintain a trajectory toward profitability.

Furthermore, each dollar raised enhances your business's credibility. While bootstrapping your way to success is admirable, having a roster of investors willing to invest their own money in your venture also speaks volumes about your business.

Is your a business or a startup?

Startups and small businesses are frequently used interchangeably in conversation, but they should not be confused as the same thing. Before delving into fundraising strategies, it is crucial to determine whether you are operating a startup or a small business.

What is a startup?

-Startups have a distinct goal of making an impact on an entire market. Consider companies such as Uber , Airbnb or BasiGo in Kenya, which have completely revolutionize

their respective industries.

-Startups also intend to grow quickly. As entrepreneur Steve Blank famously said: "a startup is an organized form to search for a repeatable and scalable business model."

-For most startup founders, innovation serves as a fundamental driving force. The objective of a startup extends beyond solving a problem or generating profit; it also entails discovering novel and creative approaches to accomplish these goals.

What is a Business?

A small business aims to identify and cater to a specific local or regional market that is relevant to its operations. Establishing a reliable customer base holds greater significance for small businesses than disrupting an entire industry.

Small businesses strive for a sustainable model that ensures their longevity. They are not primarily focused on achieving exponential growth. Instead, their priority lies in generating revenue and operating a standard business model that yields a profit. Their goal is to build a solid foundation rather than reinvent the wheel.

While our guide primarily concentrates on raising funds for startups rather than small businesses, we acknowledge the needs of small business owners. If you are a small business owner, we have three methods to share that are generally applicable and can assist most founders.

Should I raise money for my startup?

Fundraising is a crucial step for many startups, but it may not always be the best course of action. It's important to consider scenarios where it might be more sensible to refrain from seeking funds. For instance, raising money without a clear purpose should be avoided. Instead, take the time to define your business plan and determine exactly what you need the funds for before initiating fundraising efforts. On the other hand, when you begin to witness growing demand and attract paying customers, that signifies an opportune moment to raise capital. Ideally, timing your fundraising just before customer acquisition can further enhance your prospects. With increasing demand, additional funding becomes essential to keep pace, and demonstrating profitability increases your chances of securing investments.

10-Ways to raise money for a startup.

1.Bootstrapping: Start by funding your startup with your own savings or personal assets. This demonstrates commitment and reduces the need for external funding.If you have the means, investing some of your own money is another way to give your startup some momentum. There are lots of ways to do this. You can earn extra money working a side job and pour all your earnings into your startup. You can examine your assets like real estate or retirement accounts and redirect some of those resources. If you’re comfortable with the risk involved, you can tap into your savings or refinance your mortgage, if you have one.

2.Incubators and Accelerators: Apply to startup incubators or accelerators that offer mentorship, resources, and sometimes seed funding in exchange for equity. Some accelerators simply offer access to office space or mentorship, but many of the best ones offer the chance for an equity investment as well. These accelerators will offer funding in exchange for a small ownership stake in your startup. The amount you’ll be offered and on what terms varies greatly from program to program. To take advantage of a startup accelerator, you’ll need to complete an application process and be selected. Here are some of incubators in Kenya that focuses on technology

Catalyst Fund , @iBizAfrica , Standard Chartered Women in Technology Incubator Kenya

3.Pitch Competitions: Participate in pitch competitions or startup contests. These events often offer cash prizes, exposure to investors, and media attention. Typically, each team is given the chance to pitch their startup to a panel of investors and the winner receives a substantial investment. There are all kinds of startup competitions held around the world. Some of them are open to nearly everyone and some of them only accept entrants that fall within a particular niche.

Examples of this are the shark tank and KCB lions den.

4. Crowdfunding:Crowdfunding sites like GoFundMe or Kickstarter make it possible to source capital directly from your (potential) user base. This is one of the simplest methods of raising funds for a startup. Each person who contributes is like a micro-investor. Crowdfunding is a great low-risk funding angle because contributors don’t expect a slice of ownership the way VCs, angels, or family offices usually do. Instead, you can entice them to donate by offering perks like early access to new product features or personalized thank-you packages.

5. Angel Investors: If your startup doesn’t yet have the traction to impress VCs, you can try angel investors. They usually won’t be able to offer as much money as a VC firm, but angel investors are known for being more willing to invest in unproven startups they believe in. Like VCs, angel investors will usually ask for equity in return for their investments.

6.Family and friends:In the early stages of your startup, friends and family can serve as a valuable source of capital, especially before you have tangible elements to present to potential investors. It's not uncommon for successful founders to receive initial financial support from someone close to them, even when their company is merely an idea. Those who believe in you the most—your friends and family—can be the perfect launchpad for your startup, providing the initial backing and support needed to kickstart your entrepreneurial journey.

7. Venture Capitalists: Venture capital (VC) firms can inject your startup with a significant amount of cash in exchange for equity, but the vetting process can be intimidating in both directions. You’ll need to consider your startup’s domain, product, location, and stage of growth and make a list of VCs that are interested in investing in startups like yours. Likewise, once you’re on a VC’s radar, they’re likely going to be researching you to determine if you’re a good match for their investment portfolio. Here are some of venture capitalists firms in Kenya: TLcom Capital Partners , Factor[e] Ventures , Global Innovation Fund.

8.Strategic Partnerships: Seek out strategic partners who can provide funding and additional resources. These partners may be interested in collaborating with your startup to enhance their own offerings or expand into new markets.

9. Pre-orders:Similar to crowdfunding, you can rally your potential customer base directly by asking them to pay for your product in advance in exchange for a guarantee that they’ll be first in line to receive it when it’s ready. In effect, this lets you borrow from future sales to fund production today. Like any kind of borrowing, pre-selling can be risky, but the risk is minimal as long as you don’t promise more than you can deliver.

10.Small Business Loans: Explore traditional small business loans from banks or other financial institutions. Prepare a solid business plan and be prepared to provide collateral or personal guarantees.

How to Raise Money for a Business Without a Loan

1.Grants

A small business grant is a sum of money given to a small business for a specific purpose. Some government agencies and private institutions offer grants to help small businesses get started or expand. Unlike funding from investors, grants do not come with the expectation of repayment. Instead, the entity offering the grant will probably be more interested in whether or not your business goals align with their particular mission for the grant money.

2.Purchase Order Financing

Purchase order financing works best for early stage companies that produce physical products. A purchase order financing organization will pay for supplies now with the expectation you’ll pay them back after you’ve used those supplies to produce and sell your product. This method is a good choice if your business is gaining momentum quickly and you find yourself scrambling for funding to sustain growth. Some businesses use purchase order financing to help them fill large bulk orders if they don’t have enough resources on hand.

3.Strategic Partnerships

Suppliers, distributors, or even other businesses can become valuable sources of capital. If you have a mutually beneficial relationship with a supplier or distributor, they may be able to offer you a better deal. Emerging companies are often able to secure investments from larger, more established companies that are impressed with your product or service and want to position themselves as early adopters.

In conclusion, raising funds for a startup is a demanding and time-intensive endeavor, yet it plays a crucial role in the growth of almost every startup. Once you have a well-defined business plan and are prepared to set it in motion, the methods listed in this guide can assist you in obtaining the necessary funding. Whether you decide to approach investors, join an accelerator program, engage in crowdfunding, self-finance, or explore alternative options, the additional capital will provide vital support during the challenging initial stages of your startup and serve as fuel for future expansion.

We appreciate your time spent reading this newsletter/blog. We wish you great success in raising funds for your startup!

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