It is important to realize that there’s a significant difference between a start-up company and a small business, this difference lies in the scope of ambition, and also in the fact that they tend to both require a different amount of capital to build. Start-ups are actually more like big corporations and companies in its early stage of development, they tend to get bigger and go after larger markets, requiring more resources and focus driven energy to pull through, Small businesses on the other hand can actually operate on a small scale indefinitely spending resources as they go, even shutting down for a period of time to restart at a later date, without necessarily designing the big picture in mind.
It is important we make these distinctions as it forms an important factor to consider when it comes to raising funds. In 2010, two partners and I decided to launch a start-up, we wanted to change the ecommerce sector in Nigeria something similar to Jumia today. We got to work, getting our hands dirty, researching, making contacts and even penning down a 40 page long business plan. We calculated that we needed #4million naira in seed funding to launch our services, as a part of the plan we sort advice from a popular successful entrepreneur in the country whom we had hoped would invest in our venture, she listened closely to our plans sharing her own experience in business and when she was done, we presented our proposal to her, she glanced at a few pages and asked “how much have you young men invested into this business?” although we did not sail through with the idea, we learned important lessons that have guided our individual firms today.
- HOW MUCH HAVE YOU INVESTED?
Start-ups can start with very little capital, little investments, and continue to maintain operations as the journey progresses. You definitely need to invest capital from your pocket before moving out for fundraising, this is because it builds a sense of commitment and belief on your part which is a very important factor for a potential investor.
- MEET YOUR CUSTOMERS
Although this may sound unrealistic, most customers are actually willing to fund you, often times this comes in the form of deposits and prepayments which would go a long way in boosting your startup. The best way is to identify your potential customers and simply ask if they’re willing, in our modern Nigerian world you would come back surprised.
- ACCESS GRANTS NOT LOANS
You’ve probably heard of the Tony Elumelu foundation, a simple google search would return results on corporations, individuals, and government parastatals that are willing to provide funds to support your startup. Often times, Nigerian star ups get caught up in the belief that only connection brings results, however, with a good operation plan, projection and the right approach/mindset accessing grants wouldn’t be much of a challenge. Grants are better options for start-ups than loans owning to the fact that the Nigerian business environment is not cast in stone and is highly unpredictable, it would therefore do your startup more good to access grants than apply for loans which may end up setting the business on an unnecessary pressure track. Loans are perfect for a business that already generates cash flow and a significant market base.
The above ideas are not standard as all businesses are different and different approaches would be required for them, however, the above tips are highly recommended for any start-up requiring funding in Nigeria.