What to consider if your start-up is looking for funding

What to consider if your start-up is looking for funding

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Recent statistics have shown that most start-ups fail within the first five years and in most cases, lack of access to funding played a leading role. Most entrepreneurs seek funding but they do not really understand the real value of money.

Philasande Sokhela, Milpark Education’s entrepreneurship lecturer, believes that entrepreneurs can really benefit by knowing the realistic cost of their business before making the decision to approach financiers. “As an entrepreneur, if you are not gaining knowledge, connections, or money, you’re wasting your time. Money is everything for a start-up but if you don’t know where to find it, then your business will go nowhere slowly.”

By attending entrepreneurial sessions, one gains a wealth of information. Sokhela says, “Attending seminars, colloquies or entrepreneurial networking sessions has proven to be beneficial to those who take advantage of the platforms. Meeting people and building your entrepreneurial networks is essential for an ‘emerging entrepreneur.’ It is imperative to build relationships as an entrepreneur because ‘Your network determines your net worth’.”

He believes that one of the common reasons an entrepreneur would fail to secure funding is due to ‘information asymmetry’. When seeking funding, he says that the entrepreneur should be able to sell the idea in a way that is perspicuous and coherent. That being said, here are some tips on things to consider when looking for funding:

Know your current financials

Managing finances in a start-up is crucial in determining the health of the business. In business, ‘every cent counts’; you should be aware of every single detail of transaction taking place in and out of the business.

Be clear on the funding request

Entrepreneurs are very optimistic individuals. They tend to exaggerate their financial needs in order to cover all the financial needs of the business, and the ‘entrepreneur’s lifestyle’. Financiers look for realistic requests, backed up by financial records of the business.

Be investment-ready

More often than not, people make an investment in people. Many entrepreneurs are reluctant to take the time to prepare a well-written business plan. Writing a business plan can be a daunting process. However, angel investors require well-written plans to assess the potential of your business.

Build relationships with potential financiers

If you are starting a new business or are already running a business, it is best that you start being friends with the banks. Banks use credit ratings to assess the creditworthiness of an individual. The same applies to assessing the feasibility of investing in your business.

Keep a record of all your financials

Financiers are wary of providing funding for a start-up due to the nature and size of the business. The uncertainty of outcomes of the entrepreneurial venture increases the degree of risks to financiers and therefore leads to difficulties in raising finance.

Stay abreast of latest developments within your industry

Knowing the industry in which you operate from ‘front-to-back’ is key. You should always be alert to new opportunities. At times, we miss opportunities due to focusing too much on perfecting our main ideas. Have a ‘bird’s-eye’ view of your industry. Know who is doing what and when.

Sokhela concludes: “Always remember that the ‘people you are looking for are looking for you’. Keep knocking on all the doors until one door opens. Do not isolate your business. Your business should lead the trends, not follow them.”

25 Apr 2018