Investing in Nigerian Startups — The Lagos Angels Network (LAN) Story
The Lagos Angel Network (LAN) was borne out of a need to professionalize the early stage investment process for its founders who had all been using personal experience and expertise for years. We had been individually investing in family members, friends, and members of the public by introduction with inconsistent results and all shared that feeling of “there must be a better way”. We simultaneously discovered that Angel investing enables the professionalization of seed and early stage investment processes and through training, could facilitate deal making in a syndicated manner and assist us with the management of our investment portfolios. While there have always been investment guidelines, regulations and policies in Nigeria provided by various ministries, agencies and departments there are no policies that specifically addresses angel investing as an asset class.
The network started in 2012 with 5 Business Angels and host of supporting organisations including Paradigm Initiative Nigeria, CCHub, Wennovation Hub, the World Bank InfoDev, KC Lions, Nokia, Digital Bridge Academy, Mobile Monday and quite a few others. Our expectation being that coming together as a network would create better returns on individual investor’s funds while also enabling us to have an impact on the Lagos early stage entrepreneurial ecosystem to which we belong. Today in 2018 LAN has over 60 members in the 5 Syndicates that make investments in the startups, scaleups and occasionally growups. Syndicate and Network activities are coordinated by the LAN Secretariat which is run by an employed Executive Secretary who reports to the Board of Directors.
While Angels are directly exposed to individual entrepreneurs and ventures through LANs sourcing and dealing process, the network strongly advises its angels to invest as a group to leverage their funding, relationships and expertise that’s made available to the investee startups and in so doing also build their individual portfolio of companies to the numbers required for success as an angel investor. Whilst historically LAN members may have lost money to unscrupulous entrepreneurs, today as Syndicate members with the deal sourcing and due diligence process of the network at their disposal, it’s become an increasingly rare occurrence.
The average investment size by the network is about $50,000 or N15M per deal with some larger and others smaller deals making up the investment profile. Industry focus by LAN Syndicates has varied over time to reflect their members background, experience and personal preferences with interests evolving over the years from eCommerce and retail when we started LAN years ago to today where some members are betting on the Fintech. Big Data and Artificial Intelligence potential while others believe that Agriculture, Energy and even product manufacturing can yield significantly better returns given the prevailing economic and political climate in Nigeria.
It has become widely accepted that access to funding, attracting talent, finding product/market fit, getting market traction for product/service and scalability of business operations are the key challenges for startup entrepreneurs. However for individual angel investors and groups, the critical challenge is finding startup investment deals that suit their needs for the right team, addressing the right market with a scalable solution to complement or enhance their portfolio of companies.
It’s very early days for LAN to talk about exits in the classical western sense and there is a view that the western form of exits will not be what happens here on the African continent as infrastructure, commercial culture and expected outcomes differ from that of the West we are trying to emulate. To that effect, LAN recently declared interest in funding ventures (called “Gazelles”) that are growing revenue 20% month on month and have the prospects of continuing to do so over the next few years. For these kind of companies, LAN will ask they consider returning capital to investors through revenue-share and other non-sale processes such as dividends.