3 things I have learned as a Nigerian investor
A few years ago, myself and my friend Abis got into a discussion at a wedding in Dubai about how Nigerian start-up’s/early stage companies could be better served by investors.
I had run my business; the Flying Doctors Nigeria Air Ambulance Service in Nigeria successfully for nearly a decade, so I was quite vocal about what I thought needed to be done.
Wouldn’t it be a great idea to start a fund, Abis said smiling. I shook my head as I had heard this before. Everyone in finance in Nigeria thinks that they can start a fund, rolling my eyes, I went to go and dance with the bride’s mum and thought nothing more of it.
Imagine my surprise a few months later, when I received an email from Abis asking me to join the board and invest in his newly formed Greentree Investment Company alongside Financial savant; Mr Bode Agusto, Dave Uduannu; head of one of Nigeria’s largest pension funds and digital advertising guru, Abas Idaresit to the board; he was ready.
I was delighted. I gladly joined the board and invested in the venture fund. We were also able to raise money from a mix of Nigerian high net worth individuals and institutions. For the past few years we have been proud to support some of Africa’s most successful start up’s. Abis has left, but before he did so he brought in new professional management team and we are super excited about our next round of portfolio companies/investments.
These are the lessons I have learned:
1. There is a demand-supply paradox
Lots of companies are looking for investors, but investors are struggling to find opportunities for investment. Many private equity firms have, rather unhelpfully started up their own greenfield companies, because they can’t find anywhere to put their funds whilst companies continue to struggle to grow.
Investors are looking for profitable companies, with competent teams ,transparent financial records, sustainable business models and realistic expectations. This combination is often difficult to find.
Both investors and the companies looking for investment will have to shift ground to find solutions to this paradox.
I detailed some of the things investors should be doing here: https://medium.com/@drola/who-funds-africa-ee310aa6620
2. Many companies do not keep good financial records
As a business owner, no matter how small your business is, you must keep accurate financial records and if possible get them audited.
For info about audited accounts please read my article here: https://medium.com/@drola/who-are-you-auditors-53ecca0a7aab
Without proper financials its also impossible for anyone to invest in your company, except your mum, your dad or maybe a naive sibling.
So get a part time book-keeper, accountant if you can’t afford full time. Keep good financial records and understand them!
3. Don’t run out of money….major key!
The continent of Africa is home to 15% of the global population, contributes 3% of global GDP, but only receives 0.1% of funding from investor portfolio’s
Money is finite, there is no money tree. You can’t live a silicon valley lifestyle on an Ajegunle roundabout budget . African companies receive far less funding on average than their Western counterparts.
Financial institutions in many parts of Africa are not set up to support growth firms. Interest rates on loans are often too high, capital is too short term and large collateral’s are nearly always required. It is this lack of growth capital that ensures so many companies in Africa stay small.
When Twitter went public back in 2013, it was an unprofitable company. In fact, the company revealed that it had lost more than $2 billion in total since launching a decade ago. The company lost $520 million in 2015 alone. General Electric one of the world’s most famous global firms holds more than $30 billion in debt, it would take roughly 15 years of its earnings before interest, taxes, depreciation and amortization (EBITDA) to equal its level of total debt. The list goes on from Walmart, to Comcast to Glencore to Tesla.
The main difference between these companies and Silverbird (which was taken over by AMCON a few years ago for owing $30m)is that the debt available abroad is more long term, patient, flexible in terms of restructuring and belongs to more robust institutions.
Take advise from your advisers/fellow entrepreneurs and guru’s in silicon valley/London and New York. But remember this is Africa and there are very distinct differences :
- You are more likely to have talent gaps and you will probably need to put a lot more effort into HR. More on that in another post (https://medium.com/@drola/3-reasons-why-your-hr-manager-belongs-in-your-c-suite-53e91154fb9)
- If your product is expensive, then generally speaking there will be a huge difference between your ‘market size’ in terms of population and your ‘addressable market’ those that can afford your product
- You will have to do better, will less money than your Silicon Valley counterparts. You will have less cash, you will raise less money
Uber raised more money in 2016, than the entire Nigerian tech industry combined
4. If you are a woman, you will have even less support
Basically, you need to acknowledge the limiting factors of this environment, mitigate what you can, manage what you can and then keep moving forward.
When people get funding, they think its a license to start enjoying the baby boy lifestyle of big offices, babes and cars. Its not. Its time to start turning that money over fast.
I wrote this article to give you a brief overview of some of the issues investors face in Nigeria, some of our worst fears (that you will just use our money to do baby boy in Quilox), some key ways to manage your advisers and your money and some basic advice on record keeping so that investors do not chase you out of their offices.
Good luck as you build the future.
Read my full profile here: https://medium.com/@drola/my-official-profile-bc53e23c64d3
