Funding your business

short of business and from interactions I have had over the years, finding the source of funding for a business start-up remains a challenge for most enterprising young men and women.
Where do I start is often the question they raise and as one of my mentors once put it “If you don’t know this by now, you probably ought to look for other work”.
It is not in dispute that the money is there, but you have to know how and where to find it.
I am not going to be lecturing on how to get the money but simply explore some of the available sources of funding.
Martin Zwilling, the founder and chief executive officer of Start-Up Professionals — a company that provides products and services to start-up founders and small business owners — has come up with an interesting list of sources for funding for those starting out.
Entrepreneurs tend to fixate on one or two funding sources — often to their detriment. It is advisable to consider all the available options.
Here are some of the sources according to Zwilling:
1. Bootstrapping. Self-funding from your savings (if you have it) is always preferred. Advantages: no time going hat-in-hand to investors and you do not have to relinquish any control in your company. The only disadvantage for this option is that in the prevailing economic environment characterised by liquidity challenges, savings are very low.
2. Friends and family. Tap your inner circle before expanding your horizons. As a rule of thumb, professional investors like to see real skin in the game —your own, of that of people who trust you. It is said that the founder of Facebook, Mark Zuckerberg, actually received funding from his sister.
3. Small business grants. This bucket often gets overlooked, but it should be major focus institutions such as the Small Enterprises Development Corporation and of late the Ministry of Youth Development, Indigenisation an Empowerment has come up with packages to fund viable projects. The response to these initiatives has been overwhelming with reports that up to US$15 million has been disbursed for women and youth projects since 2009.
4. Loans or lines of credit. If your company needs only a temporary or small infusion of cash, try for a small business loan or a bank line of credit. There is a catch though, as commercial banks are often dismissive of start-ups unless you have personal collateral at risk — say, your house. In this environment, banks are offering short-term loans whose interest rates are on the high side and appear not to be attractive particularly for business start-ups.
5. Incubators. A start-up incubator is a company, university or other organisation that puts up resources — laboratories, office space, consulting, cash, and marketing — in exchange for equity in young companies when they are most vulnerable. This is not a very established concept in our economy although the Harare Institute of Technology has done some work in this regard.
6. Angel investors. For those looking for US$25 000 to US$250 000, angel networks can come in handy. Networking is critical here, and you need to find angels who understand your industry and share your passion.
7. Venture capital. As a rule of thumb, do not try this one in the earlier stages; in fact, do not try it unless you need more than US$1 million. VCs take their pound of flesh in equity and control. It is not the most efficient route, either: Prepare to spend at least six months searching for and closing the deal. Start your search within your local network of entrepreneurs. After that contact the Venture Capital Company of Zimbabwe for guidance.
8. Bartering. Exchanging goods or services as a substitute for cash can be a great way to run on a little wallet. Example: trading free office space by agreeing to be the property manager for the owner. This technique can also work with legal, accounting and engineering services.
9. Form a partnership. A more established company may have a strategic interest in helping to develop your product — and be willing to advance funding to make it happen. There are several companies that develop customised social networks for large enterprises, with the expectation of using that funding and experience to compete in the consumer market some day. Licensing may not be as appealing as being a consumer brand, but it will cost you a lot less.
10. Commit to a major customer. Some customers would be willing to cover your development costs in order to be able to buy your product before the rest of the world can. Their advantage: control over your production process (to make sure it meets their requirements) and the promise of dedicated support. Even large companies look to their best customers to fund new projects — this is the essence of good business development. A case in point is Delta Corporation that contracts certain businesses to exclusively manufacture products such as wooden palettes for their use.
No matter which route you choose, all funding decisions involve complex trade-offs between near-term and long-term costs and benefits. Your best bet: Check out all the alternatives.
As always, let’s make money.