eBusiness Weekly
Kudzai M. Mbaiwa
The task of raising capital is certainly one of the toughest things any entrepreneur will experience. However, there are many approaches to raising capital and if any one method fails the business owner of today has options. In the digital age, information can more easily be accessed and it is much easier to “put yourself out there” as well so that you attract the investment you need. Here are a few more “new economy” ways one can raise capital through.
Crowd-funding is a method that has recently become prevalent in Zimbabwe, the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.
There are many platforms used to crowd-fund, notable amongst them are the pioneer ones such as Kiva, Indiegogo, Kickstarter and Microventures.
Most Zimbabweans are familiar with GoFundMe, a crowd-funding platform that has sadly been popularised by social causes — in the main repatriation costs for folks that would have passed away whilst in the “diaspora” or some that may require support for the treatment of terminal diseases.
Increasingly though, due to a lack of robust platforms or ignorance of the few that are available locally, social media is being used as the platform and mobile money numbers or bank account numbers furnished for donations.
Typically a good crowd-funding campaign would require the promoter to create a short video, under 2 minutes, detailing an innovation or concept they have come up with, and demonstrating a value proposition.
They would further outline their capital requirements to produce the product at scale and indicate the cashflow forecasts once it hits the market and projections as far into the future as possible. Would-be investors are then invited to make contributions and are promised various types of rewards: equity, interest in the case of debt extended or tokens. The benefits to the promoter are the marketing opportunity, feedback from participants and of course the resources raised.
In truth, we have long had our forms of crowd-funding particularly for events like weddings and funerals, and in the case of business, the same basics remain: a worthy cause, an appeal, and receiving support. The essential difference is that for an enterprise it must make economic sense and reward participants.
Bootstrapping is yet another way to capitalise a small business. This method is when you start small and business grows by reinvesting proceeds, what others have termed “organic growth”.
Often it works well in tandem with another method, for example one may have started a small chicken rearing project in their city backyard with personal savings and gone full circle, sold every bird.
They then elect to increase the number of birds in the next cycle informed by what they would have grossed from the first cycle. In that way growth is managed, predictable and steady.
Over time one can then move from 25 to 40 then 75 and 100 birds. They will be learning slowly and growing capacity without need for injection of other capital. This requires a great deal of patience and discipline to ensure every single dollar is reinvested into the venture.
Keeping records will be key because such kind of business owners are favoured by bankers in the future as they will have both proof of concept and evidence of their growth and fiscal aptitude.
I have known of young Zimbabweans that started a furniture manufacturing and agricultural engineering implements company in this way, putting in personal money first then growing order by order. Of course there will come a point when the business will require greater capital than that owners can reinvest, but it will be much easier to find it with such a track record.
Angel Investors are a good point of contact when you need to raise capital for a small business.
These are usually very rich individuals that enjoy helping entrepreneurs in their business ventures.
They also tend to be professionals that want to be sure that the business they are assisting is a proper outfit that has formalised in some basic way, registered, with a bank account and a solid business plan.
Recently, angel investors have been known to ask for a current business model canvas as well. In the absence of a fully-fledged and/or visible angel investment sector in Zimbabwe, most small business owners utilize a similar arrangement albeit informal where they appeal to wealthy people to invest in their ventures.
I am aware of a few emerging internet start-ups that have successfully raise in the range of $10 000 to $50 000 from high net worth individuals on the basis of just a pitch and a plan, money that has enabled them to get started on some ideas.
Networking is thus a very important skill to be learnt by any small business owner — because in meeting people you never know who you may come across that can catapult you to your next business level!
Venture Capital is one of the toughest ways to raise capital for small business, due to their many (stringent) requirements. The normal structure is that these firms invest in your business and exit after a period, taking a return on their investments.
The terms of investment are usually already set and difficult for most small businesses but if you successfully meet the requirements set by the venture capitalists, you will get all the capital you need to start up and operate the business. In addition, venture capitalists provide ongoing advisory services and help you make sound business decisions so that your business grows and survives and possibly thrives in the business world.
The principals of such companies are seasoned investors and many of them past business owners that have a wealth of experience, so that value is not just monetary but the priceless mentoring.
Several such firms are emerging in Zimbabwe though the bulk of them focus on more mature businesses that have significant turnover. There is definitely a case to be made for more venture capital activity especially as new businesses emerge as we move in the direction of reinvigorating our economy.
Customers or a consignment arrangement is the last way we will speak to of raising capital. It is possible to reach out to customers for capital, through an arrangement where you charge them for a product or service before you actually provide it to them.
The upfront payment enables you to get the raw materials you require and deliver then retain your profit.
Depending on the value placed on the product of service, some customers may gladly pay upfront. This works especially well for custom made goods, and also works easily for those that offer goods through online platforms where payment is made first and delivery after.
On the flip side, consignment arrangements are where your suppliers’ advance you stock, you sell and retain your profit, then give them what is due to them.
This method works brilliantly with retailing enterprises and enables you to fully stock without committing much.
Loans are certainly not the only way to capitalise a small business, getting funds from others to repay with interest. The small business owner of today must begin to think in other terms, and innovate in funding their enterprise if they are to survive. We will look next into opportunities for small business funding and alternative financing that exist in
Zimbabwe for discerning investors and how they can implement them.
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