Doing business in Nigeria is so challenging that the entrepreneur would have to virtually create necessary enabling environment and build almost all the facilities needed for the business to thrive. Even after that, access to funding or investment support needed to help the business scale is a scarce commodity.
As a result, almost all the Small and Medium Enterprises suffer stunted growth and some eventually collapse. This reality is considering a well recognised fact that mid-sized companies are backbones of commercial and industrial structure, accounting for over 95% of the private companies in Sub-Saharan Africa.
But poor funding and inadequate enabling environment make these companies typically show weak capacity to manage business succession and expansion.
This gap is what a group of successful Nigerian businessmen recently organised themselves to plug. Under the aegis of Lagos Angel Network, the group provides seed funding for start ups to help them scale and in addition, provide advisory services, mentoring and ensure that the start ups grow to the level where higher investors like venture capital companies and private equity companies will become interested in them.
HI-TECH EDITOR, PRINCE OSUAGWU spoke with the Director of this group, Engr Collins Onuegbu, who also, is the Vice Chairman of Signal Alliance; a top class Nigerian IT service provider and an end-to-end system integrator.
Onuegbu’s opinion is that more Angels need to appear in support of local entrepreneurs for appreciable head way to be made. Enjoy his views
FORMATION years: Lagos Angel Network started about two years ago. We are still building the network. It is however not a non profit organisation. We are not investing as philanthropists; we are investing as business people. So we want to understand how we can put money in a small venture, grow it and make some money back.
We did a lot of building up in our first year and in that year, we invested in one company but since the beginning of this year, we have invested in two companies. A lot of our members have also invested in other companies in their individual capacities. For instance, I have a seed investment firm that has for the past two years invested in four companies.
Number of investments targeted before the year ends
This year we started a program we call the D-day. Every quarter, we raise money and invest in two or three companies. In the first quarter, we raised N50million and we invested in two companies. So our plan is to do this quarterly and if we can keep investing in two companies every quarter, it will give us eight companies in a year. We hope as we grow, we will be able to raise money and do more deals. Our target this year is to invest N100million on the start-ups and we are hopeful that the investment will keep improving.
In the last quarter, our target was to raise N25million but we raised more than that. Raising money is very challenging, there is no money sitting somewhere for us to take. We have to go to our members to source the fund. Even though our target is N25million per quarter, we can raise more than that depending on what is available. When we raise that, it does not mean that we will give all to the investors that come we must invest in the right way we are not going to be throwing money at businesses anyhow. Part of what we do is that the network itself has access to other people who do investment. So as we are putting money sometimes people get interested and want to support us.
Criteria for support/repayment plan: At the start up level most times we are looking at the entrepreneur and guage his credibility. There is a saying in the industry; do you invest in the horse or the rider? You invest in the rider because he owns the idea. If the horse drops dead, you can change the horse but you cannot change the rider. The business must appear to have the capacity to scale. Now if the business does not scale we are not going to be able to get our money. We look at the credibility of people and capacity of their businesses to scale. with a couple of other things,because at the initial level no matter what the person tells you, it is only a projection of the future. So you rely on his credibility that the person is telling you the right thing and that the business can solve a credible problem.
In terms of the repayment plan, what we expect is that when the business succeeds it should pay back so we can take up another entrepreneur.
Are ICT start-ups the priority?
Most of our members come from ICT background so we are very sympathetic with ICT companies but the company invests in any company that we feel is viable. The bottom line is businesses that have strong future and potential for return on investment. It doesn’t matter how small they are at the beginning.
Our networks put in money, time and mentoring. You cannot mentor a child that is not close to you. So most times we see ourselves investing in companies that have their locations around Lagos. Our hope is that if we succeed networks will come up in other places maybe Abuja or any other location. We are trying to help Abuja, Port-Harcourt and Benin set up, so they can also help local businesses in their domains. It is difficult for an Angel investment to invest outside its immediate environment because there will be need for mentoring and monitoring. You can only do that when you are familiar with the environment.
Identity of members
It is not a secret society; I am the director and there are a couple of other executives. I still have my own business just like other of our members. Like I said, our members are mostly people who have achieved success in their careers and have a little money to put as Angels to start up businesses. They know that at the seed level, it is very risky to invest in a company, but these are also people who can lose N1million in a year or half a year and forget it since it was for a good cause. That is the kind of people we are. People, who have been in the industry for a while, people who are running their own companies. People who can afford to bring a huge amount of money for investment.
Government s upport?
Some of us are risk takers; we are established. It will be most appropriate and nice for government to do something that will make investment more friendly, that will help everybody but those of us in Lagos Angel network, we just want to create an ecosystem that can help Nigerian start ups.