5 Alternatives to angel investors’ money to grow your business in Nigeria
Although the rapid growth of startups over the past three decades has been aided by angel investors, founders are progressively more likely to look for alternatives to angel investors to finance their expanding enterprises.
Why is angel investment losing its appeal?
First of all, founders don’t want to cede control over decisions or be limited in their ability to benefit from their ideas, two results that are common in angel investment agreements. Again, a lot of angel investors (though not all of them) frequently seek the highest rates of return, driving firms to pursue an aggressive, unrealistic growth strategy that is unsustainable for the company over the long term.
The majority of angel investors have also expressed an interest in supporting tech enterprises or businesses that can position themselves as such. Unfortunately, because of this bias in Silicon Valley, many businesses are now looking for capital elsewhere, especially those that produce, market, and develop tangible goods or are primarily seasonal in nature.
All of these factors make it common for startups and middle-market companies to look for alternatives to angel investors out of sheer need. Fortunately, there are a lot of well-liked alternatives that let you have far more influence over the direction and future of your company while giving crucial funding to move a fantastic idea into profitability and long-term success.
In this post, we’ll examine the best alternatives to angel investors and discuss their advantages and disadvantages. The following funding sources have thrived and grown despite the fact that many of them were already well-known before the COVID-19 pandemic because of their borrower-friendly terms and greater degree of adaptability than conventional business angels.
- Loans from close relatives and friends
Startup founders could discover that they have friends and family who support their ideas, see promise in them, and want to see them thrive. They can be prepared to invest their own funds to make sure that a fantastic business idea can develop and succeed. However, before proceeding, it is crucial to reach an agreement, just like in any business arrangement involving friends and relatives. A bad agreement can have long-lasting financial and emotional repercussions that last for years or even decades.
Make sure that a friend or family member is in a position to invest before agreeing to take their money. This indicates that they have the resources and knowledge necessary to understand the risks they are taking on. For instance, experts advise making sure that any friend or member of your family that invests has at least $1 million in assets or a steady income of $200,000 or more each year. This makes it easier to guarantee that founders are working with people who are financially literate and can afford to bear the risk associated with any form of loan or investment.
Crowdfunding is about as distinct from angel investing alternatives as you can get. Instead of turning to traditional fundraising sources like banks or even angel investors, companies that use crowdsourcing raise money from a large client base through websites like Kickstarter or Indiegogo. Instead of one or two wealthy investors, crowdsourcing typically entails a huge number of little contributions from hundreds or thousands of people.
Companies frequently provide rewards to crowdfunding investors in exchange for their money, such as the assurance that they will send them real products once they have been produced. Peer-to-peer business lending is another kind of crowdfunding where businesses can get secured or unsecured loans through a number of internet platforms. Even places created for equity investments via a crowdfunding platform exist.
It’s crucial that a business picks a reliable platform for crowdsourcing and that an entrepreneur sets aside money for the fees these platforms charge. But there are lots of benefits. An enterprise builds a consumer base among individuals who are supporting its product in addition to raising the necessary finance.
Even if a business may be dealing with the founder’s friends and family, it’s crucial to be explicit about the loan’s terms, especially since close lenders might anticipate having a vote in business choices even if they don’t acquire an equity interest. Repayment conditions linked to cash flow should be spelled out in detail, and everything must be documented.
The main benefit of borrowing money from family and friends is that the giver cares about and loves the company’s founders; it is not an impersonal transaction. Of course, this is also the main drawback; a financial crisis may sour relationships permanently.
Bootstrapping, sometimes referred to as self-funding, is a successful method of startup financing, particularly when your company is just getting off the ground. Without first demonstrating some traction and a strategy for possible success, first-time entrepreneurs frequently struggle to secure finance. You can put money from your own savings or contributions from friends and family toward an investment. Due to fewer requirements and procedures, as well as lower raising expenses, this will be simple to raise. Family and friends are typically lenient with the interest rate.
Because of its benefits, self-financing or bootstrapping should be taken into account as a first funding alternative. You are bound to business when you have your own money. Investors will likely view this as a good point in the future. However, this is only appropriate if the initial requirement is modest. Some firms require funding from day one, in which case bootstrapping may not be the best course of action. Bootstrapping also involves making the most of available resources, both financial and non-financial.
Read Also: 7 things investors are looking for in startups in Nigeria
- Winning financially rewarding contests
Maximizing the opportunities for fund raising has been greatly aided by an increase in the number of contests. It inspires business-minded individuals to launch their own ventures. You must either create a product for these competitions or create a business strategy.
You might receive some media attention if you succeed in these contests. In order to increase your chances of winning these competitions, you must make your project stand out. You have two options for pitching your idea: either in person or through a business plan. It ought to be thorough enough to persuade anyone that your concept is worthwhile. To start, look into the most recent startup initiatives and competitions in your neighborhood.
- Bank Loans
Banks are typically the first place entrepreneurs look when considering funding. The bank offers two different types of funding for companies. Loans for operating capital and finance are the two options. The loan amount needed for one full cycle of revenue-generating operations is known as working capital, and it is often determined by hypothecating debtors and stock. When receiving funding from a bank, the customary procedure of disclosing the business plan, valuation information, and project report upon which the loan is sanctioned would be followed.
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