Just having a million dollar agribusiness idea will amount to nothing if you do not have adequate funding to implement and execute, this applies to all sectors of agribusiness. You will need money to get all the resources necessary and required to set up your agribusiness venture. After carefully planning your agribusiness venture, the major determinant of its productivity, profitability, sustainability and success all round is availability of adequate capital to start and run your agribusiness venture. Capital and funding is so much important in agribusiness to the extent that it base determines your scale of production which in turn has huge impact on its profitability, effectiveness and efficiency. It costs money to start a business. Funding your business is one of the first and most important financial choices you would make as an Agripreneur. How you choose to fund your business could affect how you structure and run your business.
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The first step to take when funding your business is to determine how much funding you will need which should cover your already calculated total operational costs or cost of production. Every business has different needs, and no financial solution is one-size-fits-all. Your personal financial situation and vision for your business will shape the future financial outcomes of your business. Once you know how much start-up or scale-up funding you will need, it is time to figure out how you will get it. Putting all your eggs in one basket is never a good business strategy. When you diversify your financing sources, you also have a better chance of getting the appropriate financing that meets your specific needs. Keep in mind that bankers do not see themselves as your sole source of funds. And showing that you have sought or used various financing alternatives demonstrates to lenders that you are a proactive entrepreneur. These are some ways through which you can get funds for your agribusiness:
Fund Your Business Yourself with Self-Funding
This is otherwise known as bootstrapping; self-funding lets you leverage your own financial resources to support your business. Self-funding can come in the form of turning to family and friends for capital, using your savings accounts, or even tapping into your retirement accounts such as pension or gratuity, and any other personal sources. With self-funding, you retain complete control over the business, but you also take on all the risk yourself. Be careful not to spend more than you can afford, and be especially careful if you choose to tap into retirement accounts too early. It is important to note that bootstrapping offers you that opportunity and advantage to gain knowledge as you expand your business since you will be starting on a small scale which poses less risk or fear of loss and you would keep gaining knowledge and expertise as you progresses.
Get Venture Capital from Investors
Investors can give you funding to start your business in the form of venture capital investments. Venture capital is normally offered in exchange for an ownership share and active role in the agribusiness venture. Venture capital differs from traditional financing in a number of important ways. Venture capitalists typically:
- Focuses high-growth ventures
- Invests capital in return for equity, rather than debt (it is not a loan)
- Takes higher risks in exchange for potential higher returns
- Has a longer investment horizon than traditional financing
Almost all venture capitalists will, at a minimum, want a seat on the board of directors. So be prepared to give up some portion of both control and ownership of your venture in exchange for funding. There is no guaranteed way to get venture capital, but the process generally follows a standard order of these basic steps:
- Find an investor: Look for individual investors, sometimes called “angel investors” or venture capital firms. Be sure to do enough background research to know if the investor is reputable and has experience working with start-up ventures. Meet up and pitch your business idea using elevator pitch or investors pitch deck as the case may be.
- Share your business plan: The investor will review your business plan to make sure it meets their investing criteria. Most investment funds concentrate on an industry, geographic area, or stage of business development.
- Go through due diligence review: The investors will look at your venture’s management team, market, products and services, corporate governance documents, and financial statements.
- Work out the terms: If they want to invest, the next step is to agree on a term sheet that describes the terms and conditions for the fund to make an investment. Such as the rate of repayment in dividends depending on their percentage ownership or stake in the business venture.
- Investment: Once you agree on a term sheet, you can get the investment. Once a venture fund has invested, it becomes actively involved in the agribusiness. Venture funds normally come in “rounds.” As it meets milestones, further rounds of financing are made available, with adjustments in price as the venture executes its plan.
Use Crowd-Funders Grant to Fund Your Business
Crowd-funding grant is a form of fund raising for a business from a large number of people, called crowd-funders. These types of crowd-funders are not technically investors, because they do not receive a share of ownership in the business and do not expect a financial return on their money. They just give funds in form of grants once they satisfied with your business idea. Instead, they expect to get a “gift” from your venture as thanks for their contribution. Often, that gift is the product you plan to sell or other special perks, like meeting the business owner or getting their name in the credits. This form of crowd-funding is also popular because it is very low risk for business owners. Not only do you get to retain full control of your venture, but if your plan fails, you are typically under no obligation to repay your crowd-funders. Every crowd-funding platform is different, so make sure to read the fine print and understand your full financial and legal obligations.
Technically, a grant is a sum of money conditionally given to your business that you do not have to repay. However, you are bound legally to use it under the terms of the grant, or otherwise you may be asked to repay it. As well, once you are granted money from one source, it is not uncommon to receive further funding from other he sources if you meet program requirements. Getting grants can be tough. There may be strong competition and the criteria for awards are often stringent. Generally, most grants require you to match the funds you are being rewarded and this amount varies greatly, depending on the granter. For example, some grants may require you to find only 40% of the total cost. Generally, you will need to provide a detailed business plan, an explanation of the benefits of your project, details of relevant experience and background on key managers, and completed application forms when appropriate. Most reviewers will assess your proposal based on the following criteria: significance, approach, innovation, assessment of expertise, and need for the grant.
Use Crowd-Funders Investment to Fund Your Business
Crowd-funding investment is a form of fundraising where a business asks the public for a contribution, in this case, it is usually in exchange for equity or ROI in the venture. It usually entails a private venture asking large numbers of people for small contributions. This differs from the more conventional practice of raising money through angel investors or venture capitalists, where a handful of actors inject larger sums into your business. In return for investing in your business, supporters will receive equity albeit with less liquidity than what you would get with public stocks. There are also more relaxed rules governing crowd-funding. There are various forms of crowd-funding, including:
- Equity crowd-funding, where, in exchange for their money, investors receive shares in a venture or the right to a portion of revenues or profits from a specific product.
- Debt crowd-funding, where investors lend their money to a venture 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.
- Donation/rewards-based crowd-funding, where a venture 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.
Get a Small Business Loan
If you want to retain complete control of your business, but do not have enough funds to start, consider a small business loan. To increase your chances of securing a loan, you should have a feasibility study report and business plan, balance sheet, and your financial plan displaying your financial projections for the next five years. These tools will give you an idea of how much you will need to ask for, and will help the bank know they are making a smart choice by giving you a loan. Once you have your materials ready, contact banks and credit unions to request a loan. You will want to compare offers to get the best possible terms for your loan. Loans are the most commonly used source of funding for small and medium sized businesses. Consider the fact that all lenders offer different advantages, whether it is personalized service or customized repayment. It is a good idea to shop around and find the lender that meets your specific needs. In general, start-ups have a harder time accessing loans than already established businesses. Entrepreneurs with a solid business plan and a good credit rating are more likely to be able to access loans.
Business Incubators
Business incubators (or “accelerators”) generally focus on the high-tech sector by providing support for new businesses in various stages of development. However, there are also local economic development incubators, which are focused on areas such as job creation, revitalization and hosting and sharing services. Commonly, incubators will invite future businesses and other fledgling ventures to share their premises, as well as their administrative, logistical, and technical resources. For example, an incubator might share the use of its laboratories so that a new business can develop and test its products more cheaply before beginning production. Generally, the incubation phase can last up to two years. Once the product is ready, the business usually leaves the incubator’s premises to enter its industrial production phase and is on its own. Businesses that receive this kind of support often operate within state-of-the-art sectors such as agri-technology, biotechnology, information technology, multimedia, industrial technology. Businesses that were supported by an incubator have a better success rate over five years.
Conclusion
All these are ways through which you can secure funds for your business, in an attempt to help you secure funds for your Agribusiness, we are committed to sharing funding opportunities on our blog, all you have to do is to apply, most will require a proof of concept, business plan and pitch deck as the case may be but what is more important is that you would have to tailor your idea in form of a solution to meet the objectives and stay within the scope of the granters vision. With more funds, you can really do more in your Agribusiness venture, subscribe to this blog for agribusiness funding opportunities.
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This article is an EXCERPT FROM Measureit247 - A SYSTEMATIC STEP BY STEP GUIDE TO ENHANCE YOUR SUCCESS IN AGRIBUSINESS: THE ULTIMATE AGRIPRENEURS' GUIDE
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