6 ways to raise funding for your startup and when to use each

In the previous post we looked at mentorship or lack of it, as one of the challenges facing the Kenyan startup. Today, as promised, we look at how to raise funding for your startup. We will explore 6 ways in which you can do this, and how appropriate each method is.

1. Paying for it with your hard-earned money

This is known by many as bootstrapping, and entails financing your startup using your own savings while minimizing expenses. This method is especially appropriate when;

• Your business or project is still a side hustle

• You are still polishing up on your idea or business model or still looking for a co-founder.

• You want to enjoy 100% ownership and control of your business.

• Of course, you have the financial muscle to support your business.

Overall, bootstrapping is a very good funding option especially for early stage companies as it minimizes liabilities (i.e. no loans) and gives you time to build your business without feeling indebted to anyone.

2. Family and friends

This basically tells you that you may turn to your network of support for financial assistance. However, this method should be taken quite seriously. It has the potential of making you and your company a great success, or making you a complete disaster.

Any entrepreneur seeking funding through this method needs to be very clear on the nature of the relationship. Should your 'investors' expect anything in return? Or should they treat the 'investment' as a gift?

Honestly, treat this source of funding like you would a partnership. Utilize any funds given well, to enable you build credibility. Besides, your family and friends have the potential to be the test market for your products or services.

This method may be applied when faced with the same circumstances as bootstrapping.

3. Crowd funding

This is like a fundraiser of some sort. It involves getting a large group of people to invest in your company, with relatively small amounts of money per person.

This method may be good for you as a startup as it provides you an opportunity to raise funds without losing ownership of your business, but in exchange for a reward, which most crowdfunding platforms detail during sign up.

For an investor however, you may need to exercise a little bit of skepticism with regards to where you put your money at. Go for established platforms. Do your due diligence before parting with your cash. Some examples of crowd funding platforms include;

• Kickstarter

• Indiegogo - Indiegogo has started a crowd funding platform meant for Africa, known as Jumpstart Africa

• Miva Funding - An African crowd funding platform

Those are just a few examples.

Despite the first 3 options being strenuous to you as an entrepreneur financially, you'll be able to steadily grow your customer base, solidify your business model and help you generate some revenue. These will give you traction and validation as you prepare your pitch deck in an effort to go after the startup funding heavy weights, i.e angel investors and venture capitalists.

4. Angel investors

These are mainly wealthy individuals or groups of individuals who are willing to support promising startups at a very early stage. 'Angels' however, may need some assurance that you have a solid business model, and that you are generating revenue.

Angel investor funding may be used to further develop your product, hire more personnel for your startup etc. Basically helping you get off the ground, to levels your own savings or family and friends may not get you to.

While these may not be easy to find, platforms such as AngelList has helped connect a number of startups with Angels in their region.

You will/may require a pitch deck when it comes to such investors. A pitch deck is basically your company's CV. It sells the company.

5. Venture capitalists.

These are the heavy weights of the heavy weights. These groups invest millions of dollars in startups. Such funding is mainly used by startups that are seeking to expand into various geographies or increase their service offerings. Often, venture capitalists seek you out. Sometimes though, you may seek them out through platforms such as Shark Tank, Dragon's den, Entrepreneur elevator pitch or even our very own Kenyan based KCB Lions Den.

6. Other methods

Some other methods you may use to seek funding for your startup include loans (would not advise a very early stage startup to take these up though), government support programmes and joining accelerators and incubators who often have a very diverse pool of investors.

Are there any other methods of funding you know of?