1. SUSTAINABLE FUNDING OPPORTUNITIES FOR START-UPS

2. OUTLINE
Introduction Challenges Facing Facing Start-ups Funding Options Venture Capital Investment Considerations Advantages/Disadvantages of Venture Capital Risk Factors in Venture Capital Investments Conclusion

3. Introduction
The formation and growth of small and medium enterprises is recognised as one of the most important factors of economic growth.
Lack of investment in ideas that could transform into reputable and profitable ventures in future is stifling the growth of the economy. 
Start-ups require money to: 
get the business off the ground;
rent space for the business
purchase furniture, equipment, supplies etc.
pay employees

4. Challenges facing Start-ups
Difficult for start-ups to take off since funding is a major challenge 
Access to traditional debt capital in view of their limited life history 
Financial institutions are more likely to fund established businesses rather than start-ups
The likelihood of failure is high for start-ups 
In Nigeria, lack of Infrastructure compounds the growth prospects of start-ups

5. Funding Options
To start a new business or to bring a new product to the market, the venture needs to attract fund. There are several types of financing possibilities
Personal Savings
Limited and un-reliable
Usually applied by the founder during the idea/experimental stage

6. Funding Options Friends & Family Angel Investors
Can be limited and un-reliable
Fund owners investing in you and not your business
Angel Investors
Private investors using their own capital to provide low level financing needed to prove a new idea
Focused on helping the business succeed, rather than reaping huge profit from the venture
Can be limited

7. Funding Options Bank Loans
Not easily accessible. Start-ups are still in a phase of idea initiation & research for markets
Insufficient operating history
Not accessible to start-ups but easily accessible to established businesses

8. Funding Options 2 Venture Capital
Money provided to start-ups with perceived long-term growth potential
Very important source of funding for start-ups that do not have access to money and capital markets
Typically entails high risk for the investor
Invested in exchange for an equity stake in the new business

9. Funding Options 3 Venture Capital
Return for the Venture Capitalist as a shareholder depends on the growth and profitability of the new business
Return is generally earned when the Venture Capitalist exits

10. Investment Consideration – Start-Up
Need Determination, Value proposition – Provable Product Need with growing market
Market Penetration Strategy formulation – Scalable Business Plan
Revenue Model to determine revenue streams – achievable Revenue Model and good potential to exit investment

11. Investment Consideration – Start-Up
Need Definition, clearly defined purpose and financing need – Fund application must be clear, reasonable valuation.

12. Investment Consideration – Entrepreneur
Established Competence and Expertise – integrity, passion, personal domain expertise, operating skills, leadership ability, commitment to the venture, even temperament, flexibility, long term vision etc.

13. Investment Consideration – Entrepreneur
Knowledge of Operating Environment – Clear understanding of the environment, customers, suppliers, competitors, intensity of competition, etc.

14. Advantages of Venture Capital
Alternative Funding Source
Essential for start-ups with limited operating history
Repayment of Venture Capitalist is not an obligation as in the case of bank loans
Rather, the Venture Capitalist is shouldering the investment risk because they believe in the company’s future success

15. Advantages of Venture Capital 2
Business Consultations
Starting a new venture is fraught with concerns about legal matters, human resources etc.
Venture Capitalists provide valuable expertise, advice & industry connections
VC assist start-ups avoid the pitfalls that are often associated with new ventures, since they are interested in the company’s future success

16. Advantages of Venture Capital 3
Management Consultations
Unfortunately, not all entrepreneurs are good Business Managers
Venture Capitalist contribute to the management of the new venture – Significant benefit for non-management expert.

17. Disadvantages of Venture Capital
Equity Position
Venture Capital firms require the new venture to give up an equity position
In some cases, this could be up to 51% and this means that the new venture is being controlled by the Venture Capital firm

18. Disadvantages of Venture Capital 2
Management Position
A Venture Capital firm will usually add a member of its team to the management of the start-up
Although this is generally to ensure that the new venture is successful, this can create internal problems

19. Disadvantages of Venture Capital 3
Decision Making
Once a new company accepts venture capital, it gives up some many key decisions about the company’s operations

20. Disadvantages of Venture Capital 4
Disclosure
Venture Capital firms usually treat information confidentially
But they don’t usually execute non- disclosure agreements due to the legal consequences of doing so
This can put your business idea at risk, especially when it is new

21. Risk Factors in Venture Capital Investments
Entrepreneur Risk
Difficult to evaluate new Management & new business without any track record
Much of a company’s success depends on the management team
VC firms take a huge risk since they cannot always predict how human beings will behave
Venture Capital
Money provided to start up small firms and small businesses with perceived long-term growth potential.
Very important source of funding for start-ups that do not have access to money and capital markets and typically entails high risk for the investor.
Invested in exchange for an equity stake in the business.
Return of the venture capitalist as a shareholder depends on the growth and profitability of the business
Return is generally earned when the Venture Capitalist ‘exists’ -

22. Risk Factors in Venture Capital Investments 2
Product Risk
Product may have little or no track record as they are largely untested
The risk factor lies in the word ‘potential’
Market trends can impact the growth of a company once poised for success
VC firm may carry out due diligence before the provision of funds, market forces may ultimately decide the fate of the new company

23. Risk Factors in Venture Capital Investments 3
Business Model Risk
Risk of existence of a faulty Business Model
Implies that the goals of the new venture will not be achieved
Market Timing Risk
Risk that the market is not ready for the product or service
Sometimes difficult to evaluate this risk, but it is an important consideration

24. Risk Factors in Venture Capital Investments 4
Timely Exit
Risk that the company management would not be able to pull off the planned exit strategy

25. Risk Mitigants Significant control over company decisions
Involvement in the decision-making processes
Part of the company’s ownership and representation on the company’s Board.
Constant scrutiny of all business operations
Staggered release of funds
Identification of start-ups with high growth potential.
Determination of an investment limit in a start-up

26. CONCLUSION Venture Capital Funds are not easy to obtain.
Venture Capital Firms look for start-ups with high growth potential.
In order to be successful: 
The Business Plan must demonstrate a good potential to exit the investment in the medium term;
The new venture and the entrepreneur must have the right attributes

27. THANK YOU