Ways to raise capital for your business

The desire to break through. The thirst to build. The drive to create. The dream to disrupt. Millions of Kenyans aspire to become prosperous entrepreneurs. The Kenyan entrepreneurial spirit remains strong from government support to university programmes to the incubator ecosphere to donor and investor funding.

While we as a nation do not suffer from a lack of entrepreneurial ideas, many would-be moguls agonise from paralysis over resource mobilisation for their entrepreneurial ventures.

Attend a pitching event at one of Kenya’s business start-up hubs whether, at NaiLab, iHub, USIU-A, or Nairobi Garage, among others, and one will notice numerous budding entrepreneurs fixated on funding needs. But capital comes in many different types, not always monetary funding.

Entrepreneurship research by Jens Unger, Wouter Stam, and others highlight the importance of an entrepreneur’s access to four different types of capital: human capital, social capital, financial capital, and other capital.

A business venture founder with strong social capital means he or she possesses strong individual skills in building networks within and outside the organisation.

A founder with human capital entails his or her strong functional competencies and skills along with building a team large enough and with adequate depth of skills to prove useful to the new firm.

The financial capital of a founder includes their personal cash and their venture equity investment potential.

Other capital can include legitimacy, proprietary intellectual property, political capital, and cultural capital in respective operational and sales areas.

Unfortunately, many aspiring entrepreneurs get much of their different capital not through any skill of their own, but through the family connections they were born into. While family connections and resources do not guarantee the success of a new venture, it does help a business launch happen faster and sustain longer before profitability must kick in and fund the start-up.

However, a new research study by social scientists David Clough, Tommy Fang, Balagopal Vissa, and Andy Wu recently published in a prestigious academic journal breaks down how aspiring entrepreneurs should mentally compartmentalise their approach to resource mobilisation.

THREE STEPS

Entrepreneurs can utilise a three-step process to help improve their access to social, human, financial, and other capital.

The business founder must think of the three steps as uniquely distinct and follow each step completely before moving on to the next.

First, a founder and his or her start-up team must conduct a search for new social, human, financial, and other capital.

The team must make a concerted effort to search both within their existing network contacts but also be proactive enough to look beyond their networks and build brand new linkages.

In the search for capital, entrepreneurs should identify who controls which capital resource and where they reside for their business. Resource holders’ offices might not always be the best place to search. Golf courses, tennis courts, restaurants, and conferences might be more fruitful in a search.

Also, David Clough and the other researchers warn entrepreneurs to not fall into the financial capital obsession trap.

Since many founders fixate on finding monetary resources, they miss out looking for human, social, and other capital that could often help them more.

Second, the entrepreneurs must secure the attention of the resource holder in the access step.

Founders must use market and non-market logic to get in front of the decision makers and make themselves memorable in affirming ways.

Building proactive new networks requires a thick skin to not get discouraged when told “no”.

ATTRACTIVE TERMS

Many new entrepreneurs fail because they fear rejection. After securing the resource holder’s attention, the founder must then acquire an agreement by offering attractive terms of reciprocity that touch on profitable returns, social returns, and environmental returns to appeal to all possible sensitivities of the decision maker.

Third, many entrepreneurs celebrate the agreement to provide social, human, financial, or other capital but neglect intentionality in securing the transfer step of redeploying the resource from the holder to the seeker.

Our high-power distance and reverence for authority in Kenya often lead us to overly polite indirect ambiguous mechanisms to finalise deals all the while promises go unmet.

Entrepreneurs must incorporate formal and informal governance to secure resource transfer. A founder must also remember that resources mobilised in the search or access step in one cycle might not get transferred until future cycles of resource mobilisation.

So, entrepreneurs must not let contacts go cold and should continually update current and potential stakeholders along with their entrepreneurial journey.

In summary, as an entrepreneur with average access to capital, ensure that you follow the above three distinct steps to enhance your venture start-up’s resource mobilisation and lead you to a well-resourced successful business.