Episode 8: How to raise money for your small business
Brothers and sisters, times are hard! At this point it’s probably safe to say we are in a struggle economy, so the prospect of raising funds for small businesses has become even harder and more expensive. However, it helps to be prepared so that if you are lucky enough to get in front of a potential investor you can ace it.
I find that creative entrepreneurs especially in this part of the world may have brilliant ideas but don’t know how to effectively pitch those ideas to investors. Omotola could be the best fashion designer in the world, master of her craft but if she can’t articulate how investing in her business will realize returns she will be unable to raise funding for her business.
An investor is like a client; you are selling them something so you need a compelling story they can buy into. The art of fundraising is basically looking at the person in front of you and figuring what part of your story they will resonate with the most.
3 tips that could help:
Get clear on the value proposition
Great ideas are fantastic but in order to raise funds for your business, you need to be able to explain to an investor how your business idea is going to make money. To do this you need to have a clear understanding of the problem your business solves and a good handle on the financials that underpin your business. Do you understand the business model? What are the revenue streams? What is the cost structure? You don’t have to become an accountant but you have to be able to interpret the numbers and what they mean for the business.
Articulate why you are raising this money
I’ve had several conversations with entrepreneurs that sound like this. ‘If I just had N5, 000,000 I would be able to grow my business’. However, when the conversation goes a step further, I find that many entrepreneurs are not able to articulate or justify how that money will improve the bottom line. They may have a vague idea but no actual facts. At the end of the day what an investor would like to know is how the money they invest in your business will translate to profit. What kind of returns are they likely to get? What level of risk is involved? When will they get their money back? So it’s important to be able to explain the how. For example, Omotola the fashion designer could say, I need N5, 000,000 to buy machines that will increase production of my fastest selling lines by 40% which will translate to at least a 25% increase in profit margins because there is pent up demand for the products but limited supply.
Demonstrate an understanding of your industry
You will need to explain the market opportunity. What is the size of the market? What percentage of said market are you targeting? What’s the competitive landscape like? What is your customer acquisition strategy and what makes you uniquely placed to tackle this market.
Overall, funds are limited so your case has to be compelling enough to convince a investor that the should take a risk investing in your business as opposed to putting the funds in the stock market, real estate or the next kid with a bright idea.