Without an effective way to access funding, even the most promising of startups will fail before they have a chance to scale into a real business.
After all, competition among startups is intense. One of the surest ways to beat your competitors is by growing fast, which is usually achieved with external financing.
There are many challenges for Africa’s early-stage startups raising funding, including the broken funding pipeline between pre-seed and seed stages.
Many African startups face the classic “valley of death” period. This is the gap between the founder’s own resources – or family-and-friends investment – running out and the point when the company is viable enough to attract outside investors.
However, only few entrepreneurs may be lucky enough to rely on family members, wealthy friends, or their own savings to set up their own businesses. The majority will have to brave the shadows and seek the help of outside investors for a chance at making their entrepreneurial dreams a reality.
So raising capital is a critical step in most African founders’ journey. But raising capital can come at a heavy cost in time, effort, and creative energy required to get money in the bank. Many founders drop nearly everything just to get in front of investors and tell their story.
But there are cases where a startup either wouldn’t want to grow faster, or outside money wouldn’t help them to. If you are that founder, then raising money would be ill-advised. The other time not to raise money is when you are unable to. If you try to raise money before your startup is ready, not only will you waste your time, you’ll waste your one chance to impress investors.
Each startup is different, and nearly every startup should be bootstrapped (self-funded) for as long as possible as there is no point in giving away equity for the sake of fundraising. If you can get your company to profitability without raising money from outside investors, this course ought to be pursued. In 2021, Mailchimp was able to sell for $12B without having raised a dime in venture capital, with 100% of the profit from the sale being split amongst the founders and employee bonuses.
Most founders, however, are not experienced entrepreneurs. Nor are they able to fund themselves forever. As a result, they will need to seek investors sooner or later. The good news is that funding can be raised early on a startup’s journey.
Depending on the stage of your startup, you would require a particular type of investor (pre-seed, seed, pre-Series A, etc.) to help take your startup to the next level. Different investors will specialise in different areas, and different stages of the startup journey; and the right investor might come on board as a trusted advisor for the long term.
That’s why it’s essential to understand where your startup is located on the scale, and on the path towards scaling.