One of the most complicated and at the same time important phases that an entrepreneur has to face is how to get investors for a startup in Nigeria. It’s a complicated moment; In the first place, because many entrepreneurs seek investment without their company meeting the conditions or requirements to obtain it. And secondly, even if you meet the requirements, it is not easy to convince investors (of whatever type) to put their money at your disposal.
An entrepreneur must be clear about whether his company has an investable profile. As viable as a bakery, for example, is probably not as profitable as an investor hopes to find. An investor looks for scalable companies that can give exponential growth and whose value increases rapidly to guarantee the success of their investment.
In any case, the objective of this article is not to know what are the reasons that lead an investor to invest or not in a company. In this article, we are going to see seven ways to get investors for a startup in Nigeria
Seven ways to get investment for a startup in Nigeria
1. Founders investment
The first investment that a startup must obtain is that of the founding partners themselves. An entrepreneur cannot expect others to trust in lending their money for the project if they have not previously done so. It is difficult to get investors for a startup in Nigeria if you have not previously invested in it.
Founders who invest heavily in their idea will not only make potential future investors trust the project more, but will also manage to retain a greater percentage of shares in the company.
2. Investment FFF (Friends, family & Foes)
Many entrepreneurs, in the initial phase of their projects, have difficulties raising capital professionally with business angels or venture capital funds: sometimes due to a lack of contacts and other times because the project is still very green. Looking for an FFF investment is a way to get a little more gasoline for the project in these cases.
Family, friends, co-workers and all those people around us who trust us and our idea will be likely to participate in this round. In addition, the capital raised in this way is a way of giving the project even more credibility. If family and friends don’t trust you to invest in it, why should professional investors?
3. Bank loan or line of credit
Banks and savings banks normally make money available to companies if the following conditions are met: The company has a good credit history and demonstrates its economic viability or the entrepreneur is willing to back the loan in case of non-payment with their resources.
Normally in the case of entrepreneurial projects, the second option is the most common since the company has not had time to generate this good track record or demonstrate its potential with numbers. It is difficult for banks to sell the idea beyond the data that you can present with numbers.
4. Grants and soft loans
In many countries, both public bodies and private entities offer grants and lines of credit with advantageous conditions to encourage the creation of new businesses. These entities have certain funds that they must distribute in competition to determine which projects are the most viable.
Normally, to access these lines of credit, the startup must meet certain requirements and conditions and must present a business plan that will be evaluated by a committee.
The characteristics of these soft loans are ideal for Nigeria entrepreneurs since on many occasions they offer shortcomings and low-interest rates, although, on the other hand, they require a lot of work and paperwork for their processing.
5. Equity crowdfunding (Peer-to-Peer)
Equity crowdfunding is an investment system that allows many small private investors to participate in an investment round in exchange for a percentage of their shares. Normally these rounds take place in the initial phases of the project and are a way of democratizing the investment to potential small investors who otherwise could not have participated.
This crowdfunding formula offers shares in exchange for money, unlike traditional crowdfunding that offers rewards. Crowd equity campaigns are normally carried out through specialized platforms which are responsible for giving exposure to the project, managing payments, and syndicating the investment in exchange for a percentage or a fixed fee.
Investing in a company through equity crowdfunding is still a somewhat new strategy, but in recent years it has become popular and is giving very good results.
6. Business Angels
Business angels are private investors who, in addition to investing financially in the project, also offer their experience, knowledge, and guidance in the business world to help entrepreneurs achieve success in their projects.
The main mistakes of entrepreneurs, many entrepreneurs confuse business angels with NGOs. They hope to obtain through them what they cannot obtain through banks and on many occasions they get angry when the latter decides not to invest in their projects.
We must understand that Business Angels, in 99.99% of the cases, invest to achieve future profitability and not out of sympathy for a project. It is for this reason that the project must not only be viable but also investable.
In the same way that business angels make a selection of the projects in which they want to invest, the entrepreneur should also make a selection of which business angels are most interesting for investment. We must take into account their specializations and their trajectory since this can help us open many doors and pave a good part of the way.
7. Venture Capital Funds
Venture capital funds are usually the next step after business angels when it comes to raising investment. Venture capital firms are made up of professional investors who often move not only their capital but also capital from many different sources: financial entities, private companies, public bodies…
As a general rule, venture capital funds invest amounts greater than those of business angels and do so in more developed stages of the project (except funds specialized in seed capital).
To access this type of investment, our project must have already demonstrated traction and interesting growth potential. In addition, these funds often add a member to the company’s board to help the business reach its full potential.
Have you used any of these forms of financing in your business ideas? In that case, share with us your experience, what have been the positive and negative points of each of them. Do you know other investment mechanisms in a company?