Good evening ladies and gentlemen, I welcome you to the third day of our series “FUNDING OPPORTUNITIES AVAILABLE TO ENTREPRENEURS”.
On the first day we categorized businesses based on Characteristics, Challenges and Funding opportunities
We went further to discuss about six funding opportunities (Bootstrapping, Informal window via Family and friends; Partnerships; Angel Investors; Venture Capital and Private Equity) on the second day.
Today we will talk about Prepayment/Upfront payment; International Development Funds; Charities and Foundations; Accelerators and Incubators.
As an entrepreneur who has a value adding product/service you may embrace this option of funding which is basically to source for consumers of your product/service and have them pay you in advance to produce and deliver such. The secret to this funding option is “starting small”.
If you have a business idea on poultry for instance, you could get bakers who would need your eggs, convince them to pay upfront for the eggs and use part of the funds received to grow your business.
Or as a software developer you could approach the end-users of your knowledge, get to know their needs, run a prototype of the solution to such needs and convince them to pay you in advance to develop the application based on their needs and requirements.
For those looking at exploring this funding option, you must ensure you deliver as failure is not an option and be rest assured that this option does not only guarantee you traction but is a great starting point in getting more and even bigger clients.
Take Bangalore’s Vinay Gupta, who founded Via in 2006 and proceeded to build it into a giant in the Indian travel industry. How? By asking India’s mom-and-pop travel agents for a $5,000 deposit in return for real-time ticketing capability and better commissions than the airlines were giving them. Signing up 200 agents in the first few months gave Mr. Gupta $1 million in cash, his customers’ cash, with which to start and grow his business. Last year, Via generated a reported $500 million in revenue, serving travel agents in India, Indonesia and the Philippines (https://www.wsj.com).
INTERNATIONAL DEVELOPMENT FUNDS
There are many development fund sponsors and organizations out there looking for entrepreneurs with great ideas to help them grow their businesses, projects or ideas through grants.
Most of these International development fund sponsors target the less developed and developing regions in Asia and Africa.
For those looking at exploring this funding option, you will need to ascertain their basic requirements and ensure you meet them before the DEADLINE because this option comes with strict compliance and the rate of rejection is high. Examples of these organizations include Newton Fund Institutional; Chrysalis Trust etc.
CHARITIES AND FOUNDATIONS
An average grantseeker may be tempted to assume that all organizations with Foundation in their name and all charities are grant giving foundations.
This will enlighten you more.
Foundation Center defines a private foundation as a nongovernmental, nonprofit organization having a principal fund managed by its own trustees or directors. Private foundations maintain or aid charitable, educational, religious, or other activities serving the public good, primarily through the making of grants to other nonprofit organizations.
Public charities generally derive their funding or support primarily from the general public, receiving grants from individuals, government, and private foundations. Although some public charities engage in grantmaking activities, most conduct direct service or other tax-exempt activities. A private foundation, on the other hand, usually derives its principal fund from a single source, such as an individual, family, or corporation, and more often than not is a grantmaker. A private foundation does not solicit funds from the public.
Examining a funder’s giving history is an important part of researching foundation prospects. Past grants can reveal the funder’s preferred subjects, organization types, and ranges of grant amounts.
We will make available lists of charities and foundations to aid your grant search at the end of the series as an incentive for staying with us.
INCUBATORS AND ACCELERATORS
For early stage enterprises, accelerators and incubators offer great ways to raise funds and grow their businesses as they assist them in the journey toward becoming successful companies.
The major difference between them is that while incubators are for innovators and entrepreneurs still at the ideas stage with no traction recorded, accelerators are basically for those at the startup stage who needs funds to scale their business.
However both incubators and accelerators offer much more than funding as they mentor you and even go the extra mile of getting you the clients you need for traction and sustenance.
One of the big differences is in how the individual programs are structured. Accelerators programs usually have a set timeframe in which individual companies spend anywhere from a few weeks to a few months working with a group of mentors to build out their business and avoid problems along the way. Y Combinator, Techstars, and the Brandery are some of the most well-known accelerators.
Accelerators start with an application process, but the top programs are typically very selective. Y Combinator accepts about 2% of the applications it receives and Techstars has to fill its 10 spots from around 1,000 applications.
Companies are given a small seed investment, and access to a large mentor network, in exchange for a small amount of equity. The mentor network, typically composed of startup executives and outside investors, is often the biggest value for prospective companies.
The mentor networks aren’t small, either. According to Troy Henikoff, managing director of Techstars Chicago, last year’s program had 153 mentors.
Aaron Harris, a partner at Y Combinator, said he’s not sure that accelerators necessarily work as a whole, but Y Combinator’s success is due to the way it approached incentives.
“A lot of that success comes back to the alignment of incentives,” Harris said. “Good programs completely align all parties — at YC all the partners who advise the companies have a stake in their success. We also do as much as we can to limit distractions. We don’t schedule unnecessary meetings, don’t force them to work in a big loud coworking space, etc.”
At the end of an accelerator program, you’re likely to see all the startups from a particular cohort pitch at some sort of demonstration day attended by investors and media. At this point, the business has hopefully been further developed and vetted.
“The goal of the accelerator is to help a startup do roughly two years of business building in just a few months,” said Mike Bott, general manager of the Brandery. “If you go through a good one, you’ll know at the end where your startup founding team and business stand.”
Startup incubators begin with companies that may be earlier in the process and they do not operate on a set schedule. If an accelerator is a greenhouse for young plants to get the optimal conditions to grow, an incubator matches quality seeds with the best soil for sprouting and growth.
While there are some independent incubators, they can also be sponsored or run by VC firms, government entities, and major corporations, among others. Some incubators have an application process, but others only work with companies and ideas that they come in contact with through trusted partners. A good example of an incubator is Idealab.
Depending on the sponsoring party, an incubator can be focused on a specific market or vertical. For example, an incubator sponsored by a hospital may only be looking for health technology startups.
In most cases, startups accepted into incubator programs relocate to a specific geographic area to work with other companies in the incubator. A typical incubator has shared space in a coworking environment, a month-to-month lease program, and some connection to the local community.
Coworking is a big part of the incubator experience and has been split off as its own separate business offering around country, with coworking spaces charging rent for access to utilities. Some accelerators offer a coworking space, but most provide companies with private office space or let them find it on their own.
“If you need private space, most incubators are open seating, and this can be distracting for larger teams,” Henikoff said. “The economics are usually on a per-seat basis, which is great for the first few people, but at a certain point it may be less expensive to get your own office.”
Both incubators and accelerators offer a great opportunity to help young companies and ideas for startups get headed in the right direction, but it’s up to you where you need to start.
Once again, we appreciate your audience and hope you learnt a lot, tomorrow being the final day, we will talk about Business Plan Competitions; Crowd Funding; Private Placement, Government Programs, Banks and others.
Remember to join us same time tomorrow and take home our incentive which is a comprehensive list of links to these funding opportunities as well as a detailed note on this lecture.
Founder/CEO (Connect Skills Nigeria)