Which is best: A funder or investor?

A Fin24 user is weighing the pros and cons of either getting a funder or investor for his start-up. He writes:

I am in the process of registering a business and like many new businesses, start-up capital is an obstacle. What I wanted to know is, is there  much of a difference between getting someone as a sponsor or getting someone to invest in the business?

What worries me is if I get an investor that means giving up a share of my business.

Please assist!

Anton Ressel, senior consultant at enterprise development programme Fetola, responds:

First off, by sponsor I am assuming you mean funder - in other words, free money (although there is never really such a thing...).

While this approach has benefits, the biggest of which is not having to pay the money back, it also has a number of negatives. These include being beholden to a funder's agenda, onerous reporting requirements and the absence of an important element any successful entrepreneur needs - hustle.

There is too much free money being dished out in South Africa to unproven start-ups, and most do not survive, because as soon as the money dries up there is no Plan B.

An investor on the other hand, may well take equity in your business but they will usually bring more than just money to the table - networks, expertise, access to resources.

Remember, it is in their best interests that you succeed, so you end up getting a package deal in most cases.

Good luck!

- Fin24

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