Capital Raising for Entrepreneurs: Private Equity and Venture Capital

When starting a business, every entrepreneur has big dreams; dreams of growing and expanding their business. Big dreams require big capital investments and this is where most entrepreneurs end up facing challenges. Many entrepreneurs attest that access to capital is a major challenge they experience at some point in their entrepreneurship journey. 

Business founders are the heart of their businesses. As such, it is important as a founder that you have a capital raising strategy; a roadmap for how your business intends to get the funds for growth. Though capital raising can be an uphill task, there are several options that entrepreneurs can choose from; personal funds, bank loans, private equity and venture capital, government grants, angel investors and business incubators. 

This article looks at Venture Capital (VC) as one of the ways that entrepreneurs can raise capital for their businesses. Venture capital is a form of private equity which provides funding for small to high-risk businesses with a high or fast growth potential. Venture capital financing is a popular choice for early-stage companies. Venture capital financing offers entrepreneurs and businesses quite several benefits:

Increased publicity and exposure. Being backed and associated with a renowned VC firm can greatly increase the visibility of a business and more so add to its credibility. 

Opportunity for growth and expansion. The large injection of capital into an early-stage, high-potential business gives it an opportunity for growth and expansion. 

Business expertise and mentoring. More than funds, a VC firm also provides businesses with expertise and business mentoring. This goes a long way in reducing the chances of business failure. In the scenario that you have a high-risk idea, venture capital can be beneficial, both financially and in terms of the necessary expertise.  

Networking. VC firms have extensive local and international connections that entrepreneurs can leverage to grow their business, from getting potential partners to new clients and even key talent. 

Favourable financing. Ideally, a venture capital firm invests in your business in exchange for equity to help you grow your business. Since the firm aims to get big returns on exit in between 5 – 7 years, you do not have to make monthly payments as would be with other financing options such as bank loans. 

Additional funding. Raising additional funds for your business comes with a higher valuation and lower risk. This is why you find that many venture capital firms look for follow-on investments and co-investments.

Speaking during a guest speaker session for the Owner Manager Programme, Ken Njoroge – Founder of Cellulant, shared his personal experience working with a VC firm. “We had a big dream and to achieve this dream, we needed capital. This meant opening up the business to investors,” he said.  

“Bringing in an external investor is a key milestone for your business. Therefore, before getting an investor, you need to weigh your need for funds against the need to keep your project small, focused and agile,” he emphasized.

“The investor you choose will be critical for the next phase of your business. It is important to take the time to think about exactly what you want in an investor. Find out what works for you; a hands-on investor or one who has specific expertise? How much control are you willing to give up? For me, my first lesson was that it was going to be uncomfortable. I felt like some of the control I had over my company had been taken away,” Ken noted. 

“Once you have settled for an investor, ensure you do a background check. Make sure to contact a business that the investor has worked with in the past and find out what they take. In addition, also ensure you check their track record and success rates while investing in businesses,” he added. 

About the Owner Manager Programme 

The Owner Manager Programme has been designed to assist business founders and owners to analyze and fine-tune their businesses, solve problems, identify and overcome roadblocks, and give them the tools to move their businesses forward. 

It aims to give entrepreneurs the confidence to put successful progressive plans in place for themselves as individuals and businesses. Learn more about the Owner Manager Programme ici

Article de Juliet Hinga

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