Angel financing: Nigeria’s wealth gap waiting to be filled (2)

GENERALLY, 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. It is important to elucidate more about the growing need for awareness on this aspect of financial services.
We will deal with ways to approach angel investors in Nigeria here. First, you need to prepare your business properly. In doing so, you have to refine your idea by showing a clear value proposition, that is, what problem you are solving. The next thing is to carry out market research. This necessarily entails highlighting the size of opportunity in Nigeria in particular and Africa in general.
Moreover, you are expected to state your business model by showing how you will make money sustainably. Specific actions that will convince your target population will be necessary. Accordingly, you have to show traction by providing even small proof of pilot sales, prototype and user sign-ups. To give a clearer picture of what is before or ahead of you, it is also a necessity to provide financials by preparing simple three to five years projections.
It is not enough to envision a project or formulate a concept. You have to get the right documents ready. These should include executive summary, which could be just a one-pager financial model, that is, basic projections and assumptions, and ownership structure, even if it is just only you as founder, initially.
A good idea must meet a good opportunity for it to thrive in reality. Therefore, be ready to find the right angel investors. Angel networks include Lagos Angel Network (LAN), Rising Tide Africa, CcHub Syndicate, ABAN (African Business Angel Network), startup diaspora groups, accelerators or incubators. Examples are CcHub, Tony Elumelu Foundation, Impact Hub Lagos. They often connect founders to angels. One more thing to do is to make contact. The importance of this cannot be overemphasised as everything will revolve around humans. Next is to think through on how to deliver a strong pitch. In doing so, you can tell a story covering why you, why now, why Nigeria?
How to make people develop interest is a core aspect of your efforts. In this case, you have to be laser focused on how to show traction. Angels like to see proof that people want your product. You will need to work with teams. Your skills in team building and networking are crucial. You are therefore inevitably expected to highlight team strength. Even two or three committed co-founders are powerful. A clear picture of scope and size has to be defined from the start. Be clear on how much you want, what you will use it for, and what you are offering in equity or convertible note. For any project to succeed from take-off through implementation, trust building is inevitable. Therefore, build trust. In so doing, be transparent about risks and challenges.
Although you will need to delegate tasks at some point in time, that does not mean that you abdicate roles that entail leadership and giving direction. You must be involved directly, not remotely. So, you have to show personal commitment, not just in ideating, but also in implementation. Moreover, endeavour to demonstrate governance basics through simple book keeping, separate business account, and maybe even a small advisory board. In a fiercely competitive environment, negotiation holds the key to meaningful competition as some concessions could be smart and highly rewarding while some others could be dumb and costly. Therefore, negotiate smartly by avoiding giving away too much equity early, ideally not more than 10 to 20 percent in the angel round. If unsure, consider convertible notes in which angels give money now, and convert to equity later at a discount when venture capital funds come in.
The legal aspect of your efforts and expectations should not be taken for granted or treated with levity. It serves you better and safeguards your enterprise by having a lawyer or startup advisor to review whatever agreements you enter into. Records and reports for the benefit of stakeholders are of essence. You therefore need to maintain relationships by sending monthly and quarterly updates on sales, users, challenges or needs. Try to treat angels as partners, not just financiers. Many can open doors to bigger opportunities.
Globally, angel financing is becoming more relevant in the business community. An overview of angel financing has revealed certain global characteristics. These are hereby highlighted. For instance, investment size typically ranges from $25,000 to $500,000 per angel, but syndicates can pool up to several millions. The usual stage of angel financing is pre-seed or seed, before Venture Capital funding. The motivating factors are the financial returns, passion for entrepreneurship, and giving back to younger founders. The deal structures are equity, convertible notes, and or simple agreement for future equity.
Angel investing hotspots: The United States ranks as the largest angel market, with organised groups like Tech Coast Angels and New York Angels. Europe ranks next with the UK leading, supported by tax incentives like the Enterprise Investment Scheme. Asia is next, with rapid growth in India, China, and Southeast Asia. Many angels are successful tech founders reinvesting in new startups. Africa is still emerging, but Lagos, Nairobi, and Cape Town are rising hubs.
Case studies of angel financing abound. One of them is Amazon in the USA. In 1995, Jeff Bezos raised $50,000 each from about 20 angel investors totaling $1 million. Those early angels saw Amazon grow into one of the world’s most valuable companies that it is today. Another one, also in the US, is Uber. In 2010, Uber raised a $1.25 million seed round from angels including Chris Sacca and First Round Capital. Those early stakes became billions of dollars’ worth after Uber’s IPO in 2019. In China, Alibaba was a leading beneficiary of angel financing. Before Alibaba became a giant, Goldman Sachs declined to invest. Instead, a group of angel investors, including friends of Jack Ma, provided $25 million in 1999. Alibaba later became a $500 billion plus company. In India, Flipkart was a leading beneficiary. Early angel funding came from the US-India angel community and small Indian investors. By 2018, Walmart acquired Flipkart for $16 billion, making those early investors huge returns
Global trends in angel financing have shown the transforming power of this avenue of wealth creation. Angels now pool funds: for example, AngelList syndicates, Tech Coast Angels. These are known as syndicates and angel networks. Impact of angels is playing a significant role in the growing interest in social enterprises, green startups, and healthcare solutions. Cross-border angels are the diaspora investors backing startups in emerging markets. Government incentives in the form of tax breaks in countries like the UK, Canada, and Singapore encourage angel activity. Globally, angel financing has powered some of the biggest companies today, such as Amazon, Uber, Alibaba. While it is riskiest at the startup stage, the potential returns are unmatched. Angels not only provide capital but also open doors, making them a critical part of the entrepreneurial ecosystem worldwide.