In a time when many businesses are sprouting from one corner to another, from one startup company to SMEs, there seems to be a great need for support. One of the problems that entrepreneurs face globally, but mostly in Nigeria, is the lack of capital to start that business.
Honestly, many Nigerian entrepreneur wannabes have the desire to begin their entrepreneurial journey only if they have capital.
That’s where venture capital comes in.
Venture capital (VC) is the startup fund that entrepreneurs can leverage to see their businesses fly. Not to go ahead of ourselves, this article will answer some questions that are on your mind. It will inform you about the different types of venture capital that exist, the firms in Nigeria that can help you with the capital, and the benefits as well as the disadvantages of venture capital.
This is probably the guide you’ve always needed to help direct your focus on getting the funds your business needs.
Are you ready to explore? Let’s get right into it!
Table of Contents
What is Venture Capital?
So, what is venture capital really about?
Before we discuss what it’s about, it’s important we get a clear picture of what it is.
Venture capital (VC) refers to a type of private equity financing provided by investors to startups and small and medium business enterprises that have a high prospect of rapid growth, i.e., very high growth and ROE potential. When these investors, a.k.a. venture capitalists, invest in a business, what they demand in return is equity—owning a part of that company.
Sometimes, venture capital is not only money but could also be professional expertise, resources, etc. As long as there’s equity involved, then it’s venture capital. This basic understanding will be needed so you can go with the flow. As a Nigerian entrepreneur, you want to know the full concept of venture capital and all it entails before making decisions about your business.
Types of Venture Capital
In investing and funding, different types of venture capital come to mind, but the three most common types that are often seen in play to help entrepreneurs are the early, expansion, and late stages of venture capital (VC). Let’s discuss these types in detail:
Early-stage venture capital
Early-stage venture capital is concerned about new businesses that are sprouting up. It is out there to help startups and small and medium businesses begin their journey.
In this early stage, the financing is further divided into three phases:
- Seed funding.
- Startup capital.
- Series A and Series B funding
For seed funding, investors provide the funding that a startup will need to research what is needed to bring that business to life and then develop a prototype. Also, the business presents its findings with high-growth plans before the next phase kicks in.
For the startup capital, investors provide the capital needed to launch the business into full operations and a good market entrance. This is, of course, after the seed funding phase.
Thirdly, there are the series A and series B phases. Here, investors provide more funding for businesses that have actually achieved significant success in their endeavours.
Series A funding is usually meant to scale up, while Series B funding is meant to achieve rapid expansion. It is also important to note that in the early stages of venture capital, investors offer guidance to newbies to help them find their feet in the business world until they gain some level of stability.
Expansion Stage venture capital
The expansion-stage venture capital is focused on companies already succeeding but at a point where they need to expand. This is where venture capital firms or private investors invest their money. At this point, a Nigerian entrepreneur who is in need of funding to scale up, enter new markets, or achieve rapid growth will have access to this type of funding.
This type of venture capital is available to companies with a track record of success, not startups.
Late-stage venture capital
Late-stage venture capital is a type of funding available to established companies that prepare for a transformation or a liquidity event.
This can be for entrepreneurs who are at a point in their company and are preparing for an initial public offering (IPO) or are ready to scale up really big. With these stakes high, late-stage venture capital could come in real assistance to help them strengthen their financial valuations, improve their operations, and then attract institutional investors to their companies. The idea of late-stage venture capital is reserved for mature companies wanting to scale or go public with their IPOs.
Venture Capital Firms in Nigeria and Their Roles
As a Nigerian entrepreneur, I’m certain that you’ll want to know the different companies in your nation that will help you with the funding that you desperately need to help your business grow.
Well, this section is meant to show you the few firms in Nigeria that can support your mission. Among the many, let’s consider a few of them:
This Nigerian venture capital firm is located at Plot 1, Nathan Terrace, 22 Babatunde Anjous Ave. Drive, Lagos, Nigeria.
This VC firm is concerned with providing venture capital and strategic management to emerging technology companies that have the potential for global scale as they enter the market. They offer these companies the support they need to reach the global level, as this is one of the many accomplishments Chrysalis Capital boasts of.
Another is having a solid presence in over 20 African countries, including Nigeria. They believe in sitting at the big table globally and are set to support entrepreneurs with the same drive.
EchoVC Partners, LLC
EchoVC Partners is another Nigerian VC firm, located at 256A Ikorodu Cres, Dolphin Estate, 106104, Lagos, Nigeria.
It is known as an early-stage venture capital firm with a technology focus that is interested in funding founders and entrepreneurs entering underdeveloped industries. With a particular emphasis on funding female entrepreneurs, African American founders, and underrepresented POC markets, EchoVC Partners supports concepts and business plans that employ technology to provide value to large consumer bases.
With over 80 years of offering value and support to entrepreneurs, it has gained valuable insights into how to meet their needs. Companies offering services in the domains of media, entertainment, developing fintech, health and human services, and smart planet are currently included in their portfolio.
LeadPath Nigeria is a Nigerian VC firm that supports small and medium-sized enterprises in rapidly expanding technological sectors, such as mobile, online, and software.
They seek to provide finance and an environment that is supportive of entrepreneurs, as well as giving them access to crucial mentoring. They collaborate with tech entrepreneurs with an unquenchable desire to produce amazing outcomes.
LeadPath, a Nigerian VC firm, offers businesses $25,000 to $100,000 as an initial startup investment.
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Benefits of Venture Capital to an Entrepreneur
What do you stand to gain from venture capital?
I think this is a crucial question every entrepreneur should ask before agreeing to the terms and conditions that these Nigerian venture capitalist firms present.
Okay, face it, the benefits are really enticing, but let’s go through them one after the other:
Access to funding
One major benefit of venture capital to you as a Nigerian entrepreneur is that it’s a means of massive inflow of capital for your business. As discussed earlier, the three major types of venture capital aim to provide capital to businesses at different stages of their endeavours.
So, if for anything, you can rest assured that your business will be funded as long as it meets the criteria for being funded.
Expertise and guidance
So, aside from funding, venture capital also presents high-level expertise and guidance to entrepreneurs by investors, either private or venture capital firms.
Investors are very interested in the success of your business because of their share. They usually bring valuable expertise, guidance, industry experience, and resources to the table, all to make sure your business grows.
Access to a valuable network
What do you think will happen when investors fund your business? You’re right! They will bring the necessary connections and valuable networks that will help your business succeed.
Because you know that venture capitalists have a wide range of industry connections, interested customers, and leads, you could leverage these networks to build extensive partnerships and multiple growth opportunities.
Funding your business is a big win for venture capitalists, as is the ability to share risks. Unlike bearing the risks that come with businesses, especially when you’re a sole proprietor who began with his own money, you share these risks with your investors.
Although risks may not be something to be glad about, the fact that you do not bear the risks alone makes them of great benefit to you.
Credibility and recognition
What do you think will happen to customers’ perceptions of your business when they realize that venture capital firms are backing you up?
Of course, that will inspire your customers to build trust in your company, and its credibility will spread far, leading to more customer patronage and valuable partnerships and collaboration from companies and investment institutions.
Disadvantages of Venture Capital for a Nigerian Entrepreneur
It’s safe to say that every move made in business comes with pros and cons, advantages and disadvantages. While we’ve considered the benefits to your business as a Nigerian entrepreneur, let’s also consider the disadvantages of venture capital. We’ll consider three of them:
Loss of complete ownership
As a Nigerian entrepreneur, one disadvantage you will face from venture capitalists is the loss of complete ownership and control. This is unavoidably a reality you’ll have to deal with. The venture capitalist already owns a part of your business in exchange for the capital you receive.
They influence the decision-making process in your business. What this means for you is that you cannot make a solitary decision without their approval.
Under pressure for rapid growth
Another challenge that you’ll face when you’re being funded through venture capital is the intense pressure to achieve rapid growth in your business. Since venture capitalists offer funds, mentorship, resources, etc., to your business, they have expectations that you must fulfil.
Part of those expectations includes achieving rapid growth within a stipulated time. This pressure can cause you to make short-term decisions that do not align with your long-term goals.
Intense scrutiny and reporting
Intense scrutiny and reporting pose a disadvantage to entrepreneurs, including those in Nigeria. It’s not as though scrutiny and making reports are not routine practices in businesses, but when venture capitalists are involved, you’re under intense monitoring.
If you solely owned your business, you could do as you please, but certainly not when your company is running on venture capital. Oftentimes, this can cause a shift in the focus of the business, allowing valuable time to be spent on making reports for your investors to be updated.
Venture capital is a strong push that Nigerian entrepreneurs should take advantage of. Ultimately, you, as an entrepreneur, have much to gain from venture capital firms. Benefits such as access to funding, valuable expertise and experience, strong networking, etc., are things you should consider worthwhile as you seek their support.
Although a couple of disadvantages come along, whether or not you can handle them depends on you. Venture capital has been a major funding source for many startups and will remain so in years to come. You need to harness what they offer and see how it affects your business in the long run.
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Edited by Emmanuel Odebiyi
- I am an enthusiastic content and creative writer. I harness opportunities to make fact-based, fictional and SEO-enhanced creative content that are captivating, interesting and worthwhile.
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