By Simba Mswaka
EVERY start-up is looking for that silver bullet that will help take their idea to the next level. Regardless of the level of growth or how long the entity has been around for, the majority are looking for that key component. Start-ups in Zimbabwe and most parts of Africa are tired of mentorship and advice. They want funding and they want it fast! With the internet making the world smaller, one can read on a daily basis of a great idea coming out of Silicon Valley or Europe that managed to raise money from just an idea.
In Zimbabwe there are a number of options but not all of them are viable enough for a start-up due to certain limitations. Let’s look at some of the options
This has been the traditional method of raising capital over the years but when you only have an idea and no collateral or bad debt, it ceases to be an option. With interest rates sitting at over 40% per annum, that is a huge albatross around the neck of anyone trying to build a start-up.
Microfinance has helped many small businesses across the world and enabled many SMEs to be able to survive. Microfinance Institutions give unsecured loans to individuals and businesses but these loans come at a hefty cost. With interest rates as high as 10% per month, it starts to add up and become very unsustainable for a start-up that is still looking to find its feet and make a profit. Rather not do it as a start-up unless the amount is small enough that you will be able to pay it back over the short term.
Venture Capital (VCs)
This is the sexiest form of funding and the one that everyone is looking to get. VCs carry plenty of clout and everyone wants a VC to fund their start-up but VCs come in different shapes and sizes with different investment thesis and targets. VCs take huge risks by investing in start-ups in exchange for equity in the belief that there will be a big exit (sale) at the end. VCs invest other people’s money so they have a mandate to provide returns to their investors, hence the investments need to make sense. Unfortunately, not every business is right for a VC because they may not have a large enough market to entice the investment.
Zimbabwe is a relatively small market and there are little to no VCs in the country. This is partly because the VC bug has not yet hit our shores and also because the start-up culture and ecosystem have to evolve and grow. The network and capital that comes from a VC is very valuable and if a start-up can find a VC outside of Zimbabwe that can help your business, they should really grab the opportunity with both hands.
Angel Investors (Angels)
Angels are wealthy individuals that want to invest their money into start-ups and great ideas in exchange for a share of equity. Angels generally invest at an early stage and provide mentorship, access to network and guidance to th start-up. Angels are a very good option because they can make decisions quickly and report to themselves because it is their money. In Zimbabwe the Angel network is very small and some would say non-existent. It is almost like a secret society because wealthy folks do not want everyone contacting them for funding. If you have access to Angels in Zimbabwe then this is a very good source of funding.
The 3 Fs or commonly known as Friends, Family and Fools. These are self-explanatory and they are the funding bedrock of most ideas. Once you take money from them there is added pressure to make it work because if you fail, it could have repercussions on your relationship. They don’t always have large bank balances so they must be used once all other options have been exhausted.
This one has become popular since start-ups have started to gain more recognition across the world. These competitions come in various forms such as pitch competitions and hackathons. They provide an opportunity for start-ups to compete and test ideas in front of an audience and also network. The pandemic has proven that some of these competitions can be run completely virtual, so that means that Zimbabweans can be involved in a number of these competitions.
If they win the competition they are able to win cash prizes or funding or access to global networks. These can be more valuable than money and they will provide the springboard for business success. Another perk for winning is that you can declare your success on your website in order to show credibility to visitors.
The competition is stiff and I encourage all start-ups to compete because it is a great way to test your business and potentially win a monetary prize.
Grants are great because they are funding that is given with no expectation of repayment. Just think of what you could do with an extra $10 000 USD. A start-up that secures themselves a grant will give themselves a good chance at staying afloat. Unfortunately, there are not many grants in Zimbabwe and if they are, not enough people know about them. Grants can come attached with conditions and this is one aspect that can make them unattractive and unattainable if one does not fit into the criteria.
This is a growing global trend which gained popularity from platforms such as Kickstarter and GoFundMe. Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a number of people, typically via the internet. Individuals have used their twitter platforms and t.v to raise money for social issues in Zimbabwe but there is no formal crowdfunding platform. Crowdfunding is an option but the start-up must be aware that they need to sell equity and also that they will have lots of shareholders. Crowdfunding also subjects the start-up to intense due diligence because the people investing need to be protected.
This is where the start-up funds themselves and should be the starting point of any funding options. Bootstrapping also signals to potential investors that you have skin in the game because you are willing to put your money where your mouth is. Bootstrapping can make growth a slow process because the capital is generally not adequate but it is definitely the most accessible form of funding.
In conclusion these are the options that a start-up can look at as it tries to get oxygen (funding) in order to grow and become successful. A start-up can employ a different mix of the above in order to make things work in their favour. So, one can have a loan from the bank and then engage an Angel Investor for more funds in order to grow faster. Then they can get funding from a VC to grow even faster. Start-ups should look at innovative ways of making these options work best for them.
Simba is the Programs Manager of Tech Hub Harare, Future VC and Angel Investor and a Startup Mentor He can be reached on firstname.lastname@example.org