No one is interested in your startup.
No one is sitting up at night wondering how your business is doing. No one wants to fund your startup.
At least, not when you are still at the idea stage.
And investors know this. They hear (and see) a lot of ideas every day that end up as failures. Consider these stats from Forbes:
- About 8 out of 10 entrepreneurs crash within the first 16-18 months of starting their venture, which makes up for 80% of all startups that fail, mainly due to cash paucity.
- Over 50% of small businesses that commenced in 2011 failed within the first four years, and only 3% were able to get into the fifth year.
- Only about 30% of all small businesses can break even while another 30% end up losing money almost continually.
That’s why getting funding at an idea level is hard and almost impossible. But all is not lost.
Here are ways to get funding for startup at an idea level:
1. Join an incubator
In Lagos alone, there are at least three that we know of – CcHub, IdeaHub and Lagos Garage. (There are more)
The great thing about incubators is that they don’t only provide funding, they provide infrastructure, mentorship and technical support.
In most cases, mentorship and infrastructure provided by incubators prove to be more beneficial than their cash injection.
In fact, meager funding could bring your business to its knees – because you don’t have enough for a reasonable cruising speed.
When it comes to funding your startup at an idea stage, an incubator is simply your best bet – not for the money, but for advice and infrastructure.
2. Enter Hackathons / Startup Competitions / Find a grant
Hackathons and startup competitions/grants are different but related.
Hackathons, as you already have pieced together from the name is about hacking new solutions together over a long uninterrupted period of time. Usually, hackathon winners get a prize money or any other pre-agreed prize.
Listen to Seun Onigbinde of BudgIT explain how the business was founded during a hackathon and how they proceeded to raise money.
Competitions/grants, on the other hand, are simply about entering a contest with your idea and facing off against other ideas. For example, the Demo Africa and SeedStars world tours give away millions of dollars as prize money for competition winners every year.
There are also independent startup competitions like the Steve Case pitch competition in 2015 where WeCyclers won $55,000.
3. Try Crowdfunding
Crowdfunding is designed specifically for funding at an idea level. With a working MVP, you can upload a request for a certain amount and people from all over the world will pitch in.
We’ve not had many local success stories from crowdfunding. A few that comes to mind include Kola Tubosun’s successful Indiegogo crowdfund run in 2015 and Kiro’o Games Kickstarter campaign also in 2015.
There is a surfeit of platforms to run your campaigns on – Kickstarter, Indiegogo, Crowdrise, RocketHub etc.
4.Find the right co-founder
This is one of the most important decisions you’ll make in your business – picking your co-founder.
The quick and dirty guide to choosing the right co-founder is to make sure you both have corresponding values and complementing skills.
And as an extension of those complementing skills, choosing the right co-founder can also involve choosing a co-founder with a decent-sized funding chest that he could pour into the company.
He’d usually get a truckload of equity for this, but he’s your co-founder anyway, so you aren’t losing much.
5. Play up your previous startup successes stories
This is for if you are approaching an investor.
Let’s get this out of the way (again), it is difficult to find someone who will fund your company at an idea level. But if you’ve had previous streaks of startup successes, it’s possible an investor will listen. If you’ve successfully started and sold many startups before, investors will be falling over themselves to fund you.
They are always looking for the next big thing. That’s their weakness (and their strength).
You have to be sure you don’t let them down, though. Because this sort of move is a one-trick-pony if your idea was to take investors’ money and buy red Ferraris. No one will even touch your ideas with a ten-foot pole after that.
6. Be an expert in your field
Another way investors can place a bet on you aside having a streak of successes is if you are a known geek in your field – say a Ph.D. in the vertical you want to start a business in with multiple papers published.
They have confidence that you know what you are doing and will gladly put their money in your care.
7. Reach out to your immediate network
This is one of the first funding sources that people reach for, but it’s hardly recommended.
What happens is, family and friends often give you their money because they like and want to support you. Not because they believe in your idea. This is not a validation of your idea and it doesn’t help if you want follow-on funding from reputable investors.
Moreover, if the business fails, close relationships could be soured. Not a great downside.