The founder places a high value on funding. Consider the funding phase as providing startups with the air, water, and soil necessary for growth. Growth-stage funding is typically the first tranche of funding that entrepreneurs receive, and it typically comes in lesser sums than funding from other stages. However, to expand outside their immediate area, startups typically need expansion funding.
Growth-stage funding hasn’t always been simple to come by. Another difficulty is persuading an investor when the startup may not be profitable at the moment. However, finding expansion money has become much more challenging given the present funding environment.
You must increase the visibility of your startup. Make a big deal out of your startup and the services it offers.
Obtaining the necessary funding to launch a project is crucial. However, expansion funds are necessary for firms to grow, just as they are intended to do. Every founder should understand when and how to move toward an expansion fund.
It is hardly surprising that the global economy has been significantly impacted by the ongoing supply chain disruptions and the Russian invasion of Ukraine. These supply-side restrictions, which are made worse by rising energy, commodity, and oil prices, have increased prices by an amount never before seen.
Increasing Inflation
The size of the cheque always changes noticeably when switching from a growth fund to an expansion fund.
This unexpected increase in price levels has brought inflation into sharper focus than the historically low inflation that has prevailed in the US economy. As the value of the currency depreciates, a high inflation rate that does not abate poses a major threat to the economy. This decline in the “real” worth of money has the potential to have a negative influence on the actual economy by making basic goods like food and power more expensive for consumers, raising operating expenses for businesses, and fostering an environment of uncertainty generally.
Financial markets react quickly to changes in the actual economy, particularly when they are caused by macroeconomic factors like inflation. Furthermore, even private markets, such as venture capital and private equity, are not immune to similar occurrences.
Many will need to restructure as operational costs rise both internationally and, more especially, in Nigeria. Any modifications you make for your startup should be in response to actual situations if you want it to raise funds and grow. Many startups fail because they simply lack the necessary funding. No founder wants to bring about that circumstance.
Global Data predicts that by 2022, the world’s inflation rate will be 7.5%. When compared to 2021, when the worldwide inflation rate was 3.4%, this figure is astounding. Similarly, Nigerian startups would struggle to raise money while simultaneously looking to expand due to the country’s 22.04% inflation rate in 2022.
The Nigerian Situation
Most startups experience pressure to expand and grow. Founders aspire to create the next paradigm-shifting unicorn, and ambition is a strong motivation. However, at times of high inflation in the financial markets, the crucial concern isn’t inflation but rather the indirect effects of high inflation, which will cause the central bank to adopt a contractionary monetary policy.
To keep the economy from overheating, Nigeria’s central bank raises interest rates following each bout of inflation. Notably, rising rates increase the cost of borrowing, which raises the cost of obtaining capital and slows the economy by lowering aggregate demand.
Since investors could be hesitant to invest in companies that might be affected by inflation, high inflation might make it difficult for startups to raise funds. This can lead to a cash flow problem, which would make it challenging for the startups to scale. Here, we’ll look at how Nigerian startup founders can grow despite domestic and international inflation.
Flexible Pricing
In a high-inflation environment, startups may need to adjust their pricing strategies to remain profitable. Fixed prices may not be viable in the face of rising costs, so startups must be adaptable and adjust prices according to market conditions.
Startups may look to raise prices gradually. This way, they won’t lose customers because of a sudden price hike and will be able to make up for the higher costs associated with inflation.
Innovate
Innovation is the key to staying ahead of the competition and maintaining profitability in a high-inflation environment. Startups that develop innovative products or services can differentiate themselves from rivals and attract customers seeking better solutions.
People will be willing to pay the price for a product that offers value and is constantly improving. A startup that solves a genuine problem and creates ease in people’s lives will always find takers. If you have a subscription-based business model, it becomes all the more important to improve your product so that people keep paying you month after month, despite inflation.
Strategize. Build a Hedge
Although it is more difficult to reduce interest rate risk, the direct risk brought on by inflation can be controlled. Understanding your portfolio and determining the degree of inflation exposure it has should be your first course of action. Changing demand or growing input costs won’t have the same effect on all businesses.
Such initiatives can gain a competitive edge when other businesses are hit by rising expenses thanks to innovative business strategies, complex supply chain operations, and cutting-edge technology. While these businesses may function within the economy, planning will lessen the volatility of inflationary investments.
Run as efficiently as you can, use resources only where they provide value, and understand when to make the proper investments to advance your company. The reality is that it’s truly a challenging time to be a Nigerian startup, but many founders can weather the impending storm of inflation.
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