Funding Strategies for Businesses in Emerging Markets.
Emerging markets are usually characterized by their unpredictability, disorder and imperfect business practices. They seldom have adequate regulatory systems or specialized intermediaries that assist in the development of a sustainable entrepreneurial ecosystem and with that, they struggle to attract the funding required to magnify their efforts towards becoming a global market.
Despite the associated risks, businesses in these markets continue to attract massive investments. This is mainly because emerging markets tend to experience rapid economic growth when measured by gross domestic product (GDP), powered by the growth and establishment of various enterprises.
How can you position your business in this market to get the funding it needs?
When trying to strategize how you can successfully move your business opportunity from ideation to startup, revisiting the business model for that opportunity can help highlight the focus areas for developing your funding strategy. Your funding strategy is your business’s proposed and documented plan for getting the resources required for business operations over a specific timeframe. Your outlines under Operations and Finance will greatly influence the strategy you require for your business.
Now is a good time to check out our article on developing holistic business models.
Creating a funding strategy usually involves something most newcomers overlook in business; the art of storytelling.
People often start a business because they identify a gap that needs to be filled or a problem no one is solving or not solving well enough within a certain community. In gaining the traction and investment you need for your business to succeed, you need to be able to effectively communicate (knowing that communication is only effective when the message being received is exactly what was sent) what value your business is creating; what your competitive advantage is; and what you need to take your business from where you are to where you want it to be.
From your business model, you will be able to highlight what key resources, partnerships and activities your business requires. This will better equip you to create a roadmap- breaking your business creation growth journey into easily digestible phases. Your funding strategy can be as simple and brief or complex and comprehensive as required but, it has to give an overview of all you want to achieve during a certain period.
This is where storytelling comes into play. With the rate at which investors are being approached and the level of competition out there for resources, it is important you make necessary preparations to ensure you don’t miss out on key opportunities.
By using a tool as simple as the internet, you can search and find valuable insights about what your potential investors want to hear. Some organizations focus on investing in businesses solving problems related to poverty or lack of access to good food and water, or access to quality education while some have no preference in what they invest in as long as it generates the returns predicted at a predetermined risk.
When you successfully find investors that fit, the next step is to work on selling that idea with clarity, purpose, and heart. You have to be able to sell your business opportunity and take away any disbelief they might have because of its unfamiliarity.
The current position of your business also greatly influences the type of investors you will approach. Some investors are most interested in the ideation stage while some are more interested in businesses within a certain valuation.
The following are key players in the funding ecosystem in emerging markets:
- YOU, the entrepreneur
The primary funding partner for your venture is you. You have to be able to use the resources available to you to get operations moving. This is known as bootstrapping. Some owners save until they have more than enough to get things going while some just start and look for benefactors to sustain their business.
An example of this type of funding takes place in the Nigerian banking industry. By paying attention to global interest in Africa’s economy, TeamApt founders leveraged this interest to start a company that focused on providing technological support for banking infrastructure. They decided to bootstrap business operations until profitability because they believed in proving their company was of value before accepting any outside investments.
When they decided to raise their Series A funding, they claimed 26 African banks as their clients and $160 million in monthly transactions, with yearly revenues running into seven dollar figures.
Two advantages of bootstrapping are the freedom that comes with taking risks without pressure from investors and also taking the time to listen to customer needs to find the right product-market fit. A clear disadvantage is the difficulty of raising the funding required for operations, resources are limited and the owner is taking a high risk with their personal financial security.
2. Friends and family
Based on the people that exist within your personal network, it is possible to generate the funding you need for your business on little to no terms. Most times, business owners seek funding here when they are still exploring the feasibility of their business opportunity.
An advantage of this type of funding is that you do not need to work as hard to convince people that already trust you to take a chance on an opportunity you are venturing into. There most likely won’t be a plethora of questions concerning business plans coming your way and there will be no micromanaging. A disadvantage to point out is that you might not get the industry expertise or network you would need to work efficiently as you would have if you engaged institutional investors.
3. Community (crowdfunding)
This form of funding largely plays into the social currency of the entrepreneur. The founder can use the story of their upbringing or social impact of what they want to achieve to pull in support from their community and generate the resources required to complete their project. Most times, the community gives altruistically.
An advantage of this type of funding is not relying on receiving funding from just one source as funding will come from a variety of sources at different times. A disadvantage is the management that will go into ensuring the different needs of a multiplicity of stakeholders are met during pitches and operations.
4. Non-governmental organizations (NGOs)
NGOs focus on tackling social, economic, and political issues globally or in select countries. In systems where inadequate infrastructure is a prevalent challenge, NGOs focus on providing funding or mentorship to innovative entrepreneurs who would otherwise be excluded or lack access to conventional funding channels.
Governments and private organizations make use of this funding mechanism to help push progress in certain industries. They provide funding to eligible candidates who can achieve great feats with social challenges they are focused on addressing.
Look out for our free resource “30+ Grants for African Businesses and Innovations.”
Just like grants, this form of funding is used to stimulate healthy competition that can help make massive progress usually in tech-focused initiatives. Founders typically present their business idea to a panel and the founder(s) with the most impressive strategy takes the prize home.
A major advantage of this form of funding is the exposure that typically comes with promotion of such a competition. Other advantages included are the expertise, network and sometimes office space offered. A disadvantage is the amount of input that would come into the development of your business as founders sometimes find themselves working on a completely different product at the end of the day.
7. Angel investors
These are usually high-net-worth individuals interested in investing in community-changing ideas either for social or financial rewards. They usually give towards a cause they are passionate about.
This model for startups has become increasingly popular in recent times. In exchange for equity, a founder receives resources ranging from office space to mentorship to valuable networking in addition to funding from an organization to kick start operations.
With the numerous advantages offered, the disadvantage of micromanagement is something that can stifle the creativity of founders. Other factors to consider before joining an accelerator program are; the equity requested, commitment to the program, risk of poor accelerator network quality and reduced involvement after timeframe.
9. Venture capital firms
These investment firms usually offer funding and mentorship to startups within a certain valuation for equity.
An example of a company that was able to acquire a substantial pre-series A funding round is Cowrywise. They were able to raise $3M because of the traction they have generated, the industry they are in and the goal they are working towards.
11. Private equity firms
PE firms invest in companies that are not publicly listed or traded. They usually allocate investment money from institutional investors.
Banks provide access to funding through loans.
13. Initial public offering (IPO)
This is the stage where most startups aim to get to. This is when a private company first sells shares of stock to the public.
There are numerous ways a business can get the funding it requires. Your funding strategy highlights what players will most likely fund your business. Most businesses in emerging markets typically use at least one or a combination of these entities to generate the funds they need but the stage the company is in will dictate how likely they will be able to get it from their preferred sources.
A good funding strategy not only pulls in the funds required to make your business a reality, it also assists in measuring business performance after certain periods.
If you are looking at increasing your chance of acquiring the funding you need for your business, one way of doing that is in creating a winning funding and investment pitch.
- Strategies That Fit Emerging Markets
- Emerging Market Economy Definition.
- Emerging market — Wikipedia
- Developing your fundraising strategy | CAF Fundraising Fundamentals
- How To Develop A Killer Fundraising Strategy
- How to build a successful fundraising strategy from scratch | Voluntary Sector Network | The Guardian
- 26 Strategies to Take Your Fundraising To The Next Level
- The Truth on When and How to Approach Investors | Startup Grind
- Startup Funding Stages: Seed to IPO Explained for Beginners
- Accelerators Vs Incubators: How to Choose the Right One | MassChallenge
- Team of ex-Interswitch engineers bootstrap their startup to profitability within 2 years
- Bootstrapping: When should Startups seek to raise external funding
- How Experts Chose Their Business Funding Strategy
- Cowrywise Closes $3 Million Funding Round Led by Quona Capital
- Pros and Cons of Joining a Business Accelerator Program — AllBusiness.com