Finding alternative ways to fund your business
Crowdfunding, incubators, grants or subsidies may be solution
In this week’s article, we’ll be delving deeper into the various types of funding that entrepreneurs can explore when starting a business.
We’ve previously discussed credit loans, personal investment, venture capital, angel investment and township and rural empowerment programmes.
Today we look at crowdfunding, business incubators, grants and subsidies.
Crowdfunding is a form of fundraising where a business asks the public for a contribution, usually in exchange for equity in the company.
Seda Chris Hani and Joe Qgabi business adviser Bayanda Mpahlwa breaks down this form of crowdfunding to investors exchanging their money for shares in a company, or the right to a portion of revenues or profits from a specific product.
Then there is debt crowdfunding.
“This is where investors lend their money to a company at relatively high interest rates, thus mitigating their overall lending risk by spreading a large amount of money in small increments across a large number of loans,” Mpahlwa said.
Donations are also termed as rewards-based crowdfunding.
Mpahlwa says this is where a company sets a fundraising target and asks for donations in exchange for some kind of token or receipt of the eventual product or service to be developed.
The next type of funding involves business incubators.
This funding generally focuses on the high-tech sector by providing support for new businesses in various stages of development.
Mpahlwa said: “There are local economic development incubators such as the Centre for Entrepreneurship’s rapid incubator here at Ezibeleni Township, which focuses on job creation, revitalisation hosting and sharing services.
“Commonly, incubators will invite future businesses and other fledgling companies to share their premises, including their administrative, logistical, and technical resources.”
An example he says is that an incubator might share its laboratories so that a new business can develop and test its products more cheaply before beginning production.
The incubation phase can last up to two years.
Once the product is ready the business usually leaves the incubator’s premises to enter the industrial production phase on its own, Mpahlwa said.
“Businesses that receive this kind of support often operate within state-of-the-art sectors such as biotechnology, information technology, multimedia, or industrial technology.
“Businesses supported by an incubator have a better success rate over five years.”
Grants and subsidies are the last funding type that we will be exploring.
Because it is not always easy to bring innovations to light, this is where government agencies step in to provide aid to SA companies.
“You may have access to this funding to help cover expenses, such as research and development, marketing, salaries, equipment and productivity improvement.
“Technically, a grant is a sum of money conditionally given to your business that you don’t have to repay. However, you ’ re bound legally to use it under the terms of the grant, or you may be asked to repay it.”
Once the entrepreneur is granted money from one government source, it is common to receive further funding from the source if one meets the programme’s requirements.