Great ideas are unceasingly birthed in our minds every time every day. Sadly, with no finance, those ideas will never come to fruition or to a level that will serve immense benefit to both the idea generators and the rest of the world.
Imagine Jeff Bezos couldn’t get finance to fund his ideas that has now become the behemoth e-commerce in the whole world. Or had Peter Thiel, an angel investor not invested a sum of $500,000 in Facebook, where would Facebook have been by now? Your guess is as good as mine! Probably, we wouldn’t have had anything as big as Amazon and Facebook today! Anyway, my point is that with no finance, no great idea can see the light of the day. That’s quite simple and uncontroversial!
Getting finance as SMEs can be extremely difficult and tricky because of many odds against them. That’s why you find majority laboring from morning till night trying to make ends meet for their businesses. Truth to be told, no one is ready to lose his/her money to a trial and error method. Because definitely, that’s what SMEs are. A game of chance for investors!
So, my advice to SMEs has always been; explore equity financing in a unique way to get your business on the map.
But the question then remains, who do I approach for equity finance as a SME?
Below are different sources of getting funded through equity financing with the exclusion of owner’s capital. My guess is: If you really have enough finance yourself, you will not need any finance, but you see, finance is never enough! So, continue reading and enjoy.
- Family and friends: This represents the best and cheap source of equity financing with no formal pitching, no slide presentation, no trust attraction, nothing than to just communicate value. This is good for SMEs who have no business plan drafted, no prototype, they just need finance to get started.I implore you to use this source properly. Let them know what you do as a person and offer them value while seeking finance. My strategy is, do not beg but show empathy and communicate value while seeking finance. I cannot stress that enough!
For a guide on how to approach family and friends, read https://rb.gy/0elfw7
- Seed/Angel investors: An individual who has experience in business and is ready to invest money where they know, based on their assessment, can generate a fair return on their investment. They invest to get an equity stake in your business.
This is good for SMEs who have already started the business, have a business plan, understand the business model well, know how much finance is needed to get to the next level.
I know you’re wondering where will I get one. In Nigeria, angel investors are not really common just like in developed climes but can be found within your family and friends, in your religious and social organizations, on professional platforms like LinkedIn and in business seminar/conferences. To get them invest in your idea/business, reach out and communicate value. Simple!
Recently in Nigeria, there is now a website for angel investors (they look real and verifiable), so, you can explore here https://angel.co/nigeria/investors. No assurance of any sort on this.
Remember, be professional and don’t be vulnerable/victim/desperate in seeking finance!
- Private investors and investment clubs: These are group of individuals who invest in great start-ups. They are not entirely different from angel investors but a group of individual and not just one person. In Nigeria, they exist mostly amongst friends, people working in offices whether private or public and who have more enough and looking for opportunities to invest their money for a fair return.
You’ve friends working, and you’ve a great idea, approach them for financing. You may never know they exist except when you start talking about financing your idea/business.
Remember, don’t use begging strategy, always offer value.
- Venture capitalists: These are special private equity firms that invest in high-growth start-ups and emerging companies with a solid base for an equity stake. They get involved in management of the business and invest more money than angel investors or private investors. They always have an exit plan/strategy to cash out which could be through IPO, repurchase and private placement or any other way.
Uber, Airbnb are still funded through venture capitalists waiting to cash out.
This is good for a well-established start-up that needs higher level of capital for business growth. A great business idea, business plan, a pitch, sound and confident founders, prominent and committed team are all requisite for venture capital fund. You really need a financial advisor before seeking venture capital. Don’t do this alone please.
Venture capitalists in Nigeria are Venture Platform, Cordros Partners, SPARK, Lagos Angel Network, Growth Capital Fund, etc.
- Private equity: These are institutional investors mostly investment banking that invest in promising startups in exchange for ownership stake. Just like venture capitalist, they may seek for a significant control of your business and will always get involved in the management of the business.
Similar features of start-ups who are attractive to venture capitals are equally attractive to private equity firms plus more.
In Nigeria, private equity deal reached N277 billion in 2019. So, why not explore this source if you’ve a highly profitable start-up business. But please, get your financial advisor along with you.
Top private equity firms in Nigeria are CardinalStone, Quantum Capital Partners, ARM Capital Partners, etc.
- Equity crowdfunding: This is a source of finance where different people invest units of money into a business through crowdfunding platform. Currently, this is not allowed in Nigeria via any formal model. So, please desist for any platform offering this in Nigeria to avoid catastrophe in your growing business.
- Government grant/gifting: This is purely a free money from government to support SME growth. Other free money comes from influential family members or friends, celebrities, corporate firms who out of their generosity and/or social responsibility offer to support SME business owners.
For this, you need to position your business well and always let people know what you do, that free money can come anytime. And as the saying goes, opportunity always meets preparedness. Be ready!
Here you have the equity finance options for SMEs!
Saheed Alaya is a finance professional helping organisations and individuals make sense of their financials in a simple but outstanding way. He demystifies the financials and brings out great insights that have the potential to leapfrog the business performance of organisations and solve their most important problems. He is also passionate about alternative investments including Private Equity, Real Estate, Agro Investment and Islamic finance – providing an alternative and unique way for organisations and individuals to create and grow wealth