Lack of capital is one of the key constraints to growth for an enterprise. Without capital you can’t expand, launch new products, enter new markets, hire new people, impact more people, etc. Finding and attracting capital is therefore one of the most important jobs for any entrepreneur.
There are many sources of capital including equity, debt, internally generated capital and grant financing. Equity financing involves giving up part of the business ownership to someone else in return for capital. The shareholders expect a return on their investment through dividend payments. With debt financing you borrow money from someone else to grow your business. When you borrow you pay interest. Businesses can also attract grant financing from government and development organisations. A business can also generate sufficient funds internally to fund its own growth.
Capital flows to where it’s most valued. This means that it’s the entrepreneur who must act in a way so as to attract capital. Capital will not flow to someone who will misuse it. Capital will not flow to a venture which is not profitable. Capital flows to a place where it will be multiplied. Capital flows where it can do good and transform society. The entrepreneur who would attract capital is someone of character and whose venture makes economic or social sense. The entrepreneur must have a track record of taking good care of his investors, employees and customers. The entrepreneur must be a person who keeps their promises and has integrity. The proposed venture must make business sense or create meaningful change. The entrepreneur should have a track record of successfully building enterprises and managing risk.
Capital is abundant. Banks are literally begging to lend the right people money. Development partners are looking for credible people to partner with. Individuals are looking for people who will not cheat them. Our job then as entrepreneurs is to position ourselves as credible people who are capable of taking good care of capital. We must present a story which demonstrates our experience, good character and business acumen. This means we need to formalize our ventures and document our entrepreneurial journey as much as possible. Someone who has been in business for ten years will easily attract financing compared to a startup of two years. We also need to develop the right networks and constantly tell our stories.
Looking for capital is a deliberate job and the entrepreneur must dedicate some time and resources to this activity. The entrepreneur should hire a lawyer to formalize the business. She should also hire an accountant to clean up the books, set up processes and establish bank accounts. She should invest in an online presence including a decent website. She should allocate resources to develop and follow up appropriate funding proposals. The entrepreneur must document how their business operates including establishing a written business plan, performance reports, human resource manuals, asset registers, quality manuals, etc. These things are not a burden because they demonstrate to potential investors that you have a mature enterprise.
In summary:- Capital is critical for business growth. There are many sources of capital including equity, debt, internally generated capital and grant financing. Capital flows to where it’s most valued. Capital is abundant, and finally, looking for capital is a deliberate job of the entrepreneur.