Every tech entrepreneur eventually needs funding at some stage in their business endeavor, whether it’s in the initial start-up phase or further down the line when they want to grow their business. Perhaps this is not as big of an issue in Qatar as it is in some other parts of the world, but to truly build a global company, the need for outside capital at some point is likely. With that in mind, here are some of the financing options to consider, as well as their implications for your business.
Bootstrapping – Just as it sounds, this means you finance your start-up with your own money. In the growth phases of your company, this would mean financing from any profits you generate. This option gives you the most control, however, if your business is capital intensive at an early stage – perhaps a big upfront investment in technology/equipment – this may be difficult. Bootstrapping the most common approach.
Government – Qatar is ripe with government run business incubation centers, including the one at ictQATAR. Entrepreneurs would be wise to see if their tech start-up would qualify for government funding or other support, such as office space. If you can qualify to be incubated, you are eliminating most of your personal risk.
Friends & Family – My business professor also adds fools to this category, but I’ll refrain. With this option you ask your network for direct financing or loans. A word to the wise on this one – often business and friendships shouldn’t mix.
Bank Loans – This is the second most common form of financing for entrepreneurs. Many banks in Qatar offer excellent rates on business loans, especially to citizens. This is a good option, but it does require some level of collateral.
Venture Capital – Perhaps the most talked about financing option for start-ups is venture capital funding, however it actually accounts for only about 5% of all financing for successful companies. An entire blog post could be devoted to VCs, but tech entrepreneurs should know that the funds available through this channel have decreased because of the financial crisis. If you decide to explore this option, remember that VC firms expect high returns on their investment and will take an active role in running your company, along with a significant ownership stake. If your business model doesn’t support at least a 60% return on investment in less than 10 years, you probably shouldn’t even consider approaching a VC firm.
Angel Investor – Most of the above about VCs applies to angel investors, however you do have more of a chance of developing a relationship that could be longer term and would not require as high of a rate of return. Still, angel investors would own part of your company with their investment and would expect a very active role in its leadership.
Crowd Sourcing – A growing trend is for entrepreneurs to crowd source funding for their new start-ups through sites like Kickstarter. The Internet certainly makes this approach more doable, but very few crowd sourced projects actually generate enough to move forward. This could change though, and if you have a creative idea that may play well online, go for it.
Many successful tech entrepreneurs use a combination of these financing approaches throughout the development of their business. For example, you may bootstrap your company initially, but as it becomes more successful, you may seek venture capital funding to take it to the next level. Knowing your options is important and each has pluses and minuses attached. Be sure to explore them all before settling on the right approach for your tech start-up.
Entrepreneurs – what has been the best approach for you in finding funding in Qatar?