NIGERIA IS AT CROSSROADS when it comes to boosting businesses and investments through injection of funds from external sources. Many new investments or newly established ones, generally referred to as startups, need some forms of handholding to help them rise and shine. And there are a lot of individuals and financial institutions of various capacities that are well positioned to do this handholding. In particular, private individuals, acting as angel investors are desirable. Angel financing, also called angel investing, is a type of early-stage funding where wealthy individuals, called angel investors, provide capital to startups or small businesses, usually in exchange for equity or convertible debt. Unlike venture capital (VC), angels invest their personal money and often provide mentorship and networks. 

Angel financing has some key features. One of them has to do with the source of funds. The funds come from an individual investor’s personal wealth, not from banks or venture capital firms. Another feature is the stage of investment — usually very early — before venture capitalists or banks are willing to take the risk. The third feature is the size of investment: Typically ranges from $10,000 to $500,000, but can be more, depending on the angel. 

Again, Angels often invest not only for returns, but also to mentor entrepreneurs, support innovation, or give back to the community. The risk level is very high, since many startups fail — but the potential rewards can be huge if the business succeeds. In angel financing, the angel, through equity financing, gets shares or part ownership in the startup. The form of involvement could be through convertible debt and loan, involving conversion into equity later, often at a discount. This has some advantages, including ease of access, room for mentorship, expertise and flexibility of deals. 

In the first instance, it is easier to access than bank loans for startups with little or no collateral. Angels may bring expertise, mentorship, and industry connections. There could also be flexible deal structures compared to formal institutions. It has some disadvantages, however, including the likelihood of founders giving up a portion of ownership and control. Although this is not wrong, angels may want a say in key decisions. High expectations for growth and return on investment could be misplaced ultimately.

In Nigeria, angel financing matters, especially, for the creation of an avenue and a pathway for enterprise growth and expansion. Traditional funding sources like commercial banks often demand high collateral and interest rates ranging from 20 to 30 percent or more. In the same way Venture Capital (VC) in Nigeria is still growing but tends to focus on later-stage, scalable startups. Angel financing fills the early-stage gap, providing capital to entrepreneurs with innovative but risky ideas.

Angel financing in Nigeria has some peculiar characteristics, namely: ticket size, sectors of interest, form of funding and non-financial value. On the ticket size, angels in Nigeria typically invest between ₦2 million and ₦50 million, or roughly between $3,000 and  $60,000, although networks may pool funds for larger tickets. On the sectors of interest, fintech, agritech, healthtech, edtech, logistics, and — recently — climate renewable energy startups. Forms of funding include equity stakes or convertible notes. Some also provide grants or quasi-equity, in what is “revenue-based financing.” It needs to have non-financial value, as angels often offer mentorship, business strategy advice, and industry connections.

Notable angel networks in Nigeria include the Lagos Angel Network (LAN) – one of the most active groups, investing in early-stage Nigerian startups. Another is the African Business Angel Network (ABAN) – a continental body with Nigerian members. Rising Tide Africa is yet another, but is a female-focused angel network investing across West Africa. There is a way they are coordinated. For instance, Syndicate by CcHub brings angels together to back promising tech-driven startups. Examples of Angel-Backed Startups are Paystack, a fintech that was later acquired by Stripe for $200 million. But early angel investors helped validate its model before VC funding. There is still PiggyVest, a digital savings platform that benefitted from angel and seed-stage support. ThriveAgric, another agritech crowdfunding platform, is also a beneficiary as angel capital boosted its early operations before scaling.

Challenges of angel financing in Nigeria include risk aversion, in which case many wealthy Nigerians prefer real estate, oil and gas, or treasury bills over risky startups. Regulatory uncertainty is such that some angels worry about lack of strong investor protection.

Exit opportunities are uncommon as there are few IPOs or large acquisitions compared to developed markets. There is always an awareness gap. Many entrepreneurs are unaware of how to access angel financing. On the opportunities, digital platforms like GetEquity and Microtraction make angel participation easier. The growing diaspora interest is such that Nigerian professionals abroad are increasingly becoming angel investors.

The government provides support through NITDA, CBN innovation funds, and startup-friendly policies under the Nigeria Startup Act. Despite all these, there has been a notable sectoral shift, with more angels backing climate-tech, health-tech, and agribusiness startups beyond fintech. 

To recap, it is now known that angel financing in Nigeria is still young but growing. It plays a critical role in bridging the funding gap for startups, especially in tech and agriculture. The key enablers are local angel networks, diaspora remittances being channeled into investments, and increased government and regulatory support.

Approaching angel investors in Nigeria would require some methods. Proper preparation of business would require a refinement of your idea, showing a clear value proposition. This would require the detailing of what problem is being solved. Market research is essential. It will highlight the size of opportunity in Nigeria and in Africa. 

The business model is essential and needs to show how the borrower will make money sustainably. It is important to have, as well, even small proofs, like pilot sales, prototype, user sign-ups matters.

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