FINANCE SOURCES FOR START UP

VENTURES

D.E UFUA
LEARNING OBJECTIVES

This class is aimed to help students:

• identify at least reasons why startup ventures may need financing.
• understand the difficulty in raising start up venture finance
• understand the sources of business finance for start up ventures.
• explain and justify sources of business finances you could use for your start up venture
• critical features of start up finance options
• develop basic knowledge on how to manage business liquidity.
THE NEED FOR START UP FINANCE

• It arises immediately business interest is highlighted,

process and plans developed.
• E.g., a dry cleaning shop, a mobile hair dressing outfit,
mobile sale of textile materials etc.
• Start- up ventures require skilful planning of financial
sources to fund its take off and sustainance operations.
CRITICAL CHALLENGES TO START UP
FINANCE
• Start- ups usually don’t have operational history. Therefore, start-up
entrepreneurs may NOT be able to attract creditors for credit facilities.
• Some start -ups may face difficulty due to negative public
assumption. E.g., women entrepreneurial ventures. This may hinder
their opportunities to attract credit facility.
• General economic trend in the chosen industry. E.g., the Nigerian
musical industry may lack the needed attraction to potential creditors
due to issues such as piracy.
• Access to external funding such as Bank loans, overdraft, lease
financing etc. could be extremely difficult.
SO WHAT ARE THE KEY ROLES OF START-UP
ENTREPRENEURS IN FINDING FUNDS FOR
START-UP?
• Remain courageous
• Embark on a critical search for available sources of funds
• Find out what are the requirements for attracting investors in each of the
sources of finance identified
• Carefully select and analyse suitable source/s of finance to choose the best
source of finance for your start up.
• Make formal approach to your chosen creditor for funds
• Deliberate/ negotiate on the terms of credit
• Agree or disagree with the offer
KEY SOURCES OF FINANCE FOR START
UP VENTURE
1. Personal Savings . Also known as ‘bootstrapping’.

• The start-up entrepreneurs relies on his/her personal savings.

• Entrepreneurs are encouraged to save for their start-up. I.e., inability
to save can be a signal for non intelligent /smart entrepreneurship.
• It proceed could be well accounted for and be ploughed back in to
the business. To enable the growth and stability of your venture.
OTHER EXAMPLES OF BOOTSTRAP
SOURCE OF FINANCE FOR START- UP
• Liquidating your equity/ share. I.e., selling of your
shares. E.g., ordinary shares, bonds etc.
• Proceed from sale of assets. E.g., a car, plot of land.
• Funding from family members/ friends
2.SPECIAL WINDFALL OR PRIVILEGED
FUND
• E.g. Cash award won from competition. E.g., Cash award for CU
best graduating student, privileged cash donation from a member of
the public or an organisation.
• Crowd funding: members of the public willingly raise funds for a
proposed start-up. E.g., support for orphanage homes, IDP in
Nigeria etc.
3.GOVERNMENT GRANT
• Sometimes, the government, in fulfilment of their campaign
promises can make provisions for start- up E.g. Trader Moni,
Npower initiative etc.
• Government effort to liberate certain sectors or geographical
locations with some budget finance for individuals. E.g., the Niger
Delta development finance.
• Special government support for women owned businesses
 FEATURES OF SPECIAL FUNDS, GOVT
FINANCE SOURCES
• They are NOT reliable and may also not accessible to every
one in the society.
 4.PARTNERSHIP /CO-OWNERSHIP

• The funder gets interested in the star-up idea

• Ready finance the business or partners jointly raise the capital
required
• But shares in the ownership of the business.
• Agreement are reach between the original patent and the financing
partners ( usually based on percentage).
FEATURES

• The original patent owner is relieved of sole ownership of the business

• He now shares the risk with the financial
• The start-up could find opportunity to grow
• Decisions are jointly made
• Profit/ loss are also shared based on agreement reached
• The original patent owner therefore needs care not to trade away his/her
effort in the process
INCUBATOR/ ACCELERATOR S’
SUPPORT
• Sometimes, private organisations of NGOs offer funds to start-up in
certain sectors of the economy. E.g., Old people’s care home, Lunatic
asylum etc.
• These could be part of the funding company’s CSR practice which
they can do in partnership with the start- up entrepreneurs.
• They may not necessarily share in the ownership of the start-up
• Sometimes they offer such support for a given period of time.
CLASS ACTIVITY

• Which other source/s do you know the can provide finance for
start-ups in Nigeria?
 HOW TO MANAGE LIQUIDITY
Determine how payments are made for transactions based on your kind of business.
E.g, cash sales of bank deposit for transactions.
Determine what point would cash be lodged into the business account.
Be strict to let business be business
Develop accounting records for all transactions and appropriation of funds
Determine to what extent is drawing allowed.
Be FIRM in following business principles, first as a manager and employee.
Let your finance decisions be based on facts and justification, based on the level of your business.