I spoke recently at a Nucleus Talks on Angel and VC investing to student entrepreneurs in Stellenbosch. One thing that I realised is how few people actually understand the different types of funding and when or how to go about getting it. Now there is no cut and dry method or simple answer but I’ll share the little that I know and hopefully you’ll find a couple of tips that you will find useful.* Firstly you need to identify between the different types of funding:
Debt funding, from banks, is the most traditional type of funding. It requires that you put up some sort of collateral for the funds and you make monthly payments to pay back the loan and the interest.
Then you get Grant funding. This generally comes from government grants or Corporate Social investment (CSI). It is normally given as an interest free loan, royalties or given on very favourable terms but have very strict mandates on the type of investments that can be made. These differ greatly depending on the type of initiative or institution that grants the funds.
The third method to fund a startup is through equity funding. This is where you give away shares in your business in return for money and hopefully some business support. Whether you go for angel or Venture Capital (VC) funding depends on how developed your business is. The normal tech startup goes through the following early stage development milestones:
Idea > Founders > Prototype > Market Validation > Market Traction > Growth
*This is just a rough overview as there is no possible way to cover all possibilities and options. If you’d like clarification please leave a question in the comments.