There is a difference between bank loans and attracting investors. I Will explain this in details at the Business and Career Conference.
Startup funds generally come from the pockets of the founders. Growth is financed by internally generated cash flows and perhaps a modest bank loans, massive growth is financed through the declaration of initial public offering (IPO) or through offering equity capital to investors.
Many businesses never get to the point of needing or wanting outside equity capital. The founders can use internally generated cash and loans to expand the enterprise to a size that, to them, is manageable and satisfactory.
This route avoids selling a share of ownership to outsiders. Generally, this type of business will never become a large corporation. It will make enough money for the owner to meet his needs and enjoy life, but it can never become as big as Guarantee Trust Bank PLC or Apple Inc.
The Difference Between Bank Loans and Investors
There’s a good deal of differences between business loans and investors. First, let’s define an investor. An investor is a person or organization who provides funding for your business in exchange for a share of the company, with hopes that they’ll get a return on their money.
A business loan, on the other hand, gives you financing that you pay back. You will not be required to give up equity in your company. If you’re applying for a secured loan, you will typically provide collateral. But letting a bank put a lien on your equipment is a lot different than giving up ownership of a part of your business.
Most companies never get beyond the early phase of growth. They either fail or are acquired. But those that succeed have access to a broader spectrum of financing opportunities. That is why some founders of large corporations are directors in banks and other financial institutions.
Your company cannot grow beyond a certain level until you attract big investors. At the startup stage you may use your savings, attract angel investors etc. to run the business for a while.
But to move from the startup stage to growth and maturity stages, you need investors. Of course, the first thing investors look at is your management system and management team. Once they discover that you are running a one-man business, they will move away.
Again, the uniqueness of the business plays a major role. No investor will invest in a company that sells generic products. No investor can invest in a shop that sells what everyone is selling.
Recently, OPay raised $50 million to strengthen the company’s position in Nigeria, expand to additional African markets and leverage its brand and app into adjacent verticals, including motorbike ride-sharing and food delivery services.
In August, 2018, Paystack announced that they raised $8 million in Series A funding. The round was led by payments leader Stripe, and was joined by global payments company Visa, with follow-on investment from Tencent and Y Combinator.
I know very well that people are discouraged from borrowing. I also advise people against borrowing. But there is a difference between borrowing for investment and borrowing to spend on liabilities.
Personally, I prefer investors funding than bank loans. I prefer giving equity to investors from my company than borrowing from the bank. What Paystack and Opay did was to attract investor’s funding.
Equity capital is capital that provides rights of ownership. Equity capital gives its contributor an ownership interest in the assets of the enterprise and a share of its fortunes. In most cases it gives the contributor a voice in how the business should be run.
There are five major ways to raise equity capital.. I will unveil them at the Business and Career Conference. Venue is Transcorp Hilton hotel, Abuja. Date is 14th September, 2019.
Click this link bit.ly/322fxVj and book your seat. For more information about the conference and my books, kindly call Godwin on 07032681154.
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