Becoming an angel investor in Nigeria is one way to grow your wealth quickly.
Take Kendall Ananyi, founder of wifi.com.ng, as an example.
In 2016, Kendall sold his house in Canada to invest in Paystack.
After Stripe acquired Paystack for $200 million in 2020, Kendall had this to say:
“Paystack was a 20x return on my initial investment in $..“
That’s the height!
If Kendal put in $25,000 in Paystack in 2016, a 20X return means he got $500,000 in 2020.
Breathtaking returns in less than 5 years.
That’s one of the benefits of becoming an angel investor in Nigeria.
So you’re asking how can I have such returns?
Simple answer: become an angel investor in Nigeria today.
Steps to becoming an angel Investor in Nigeria
- Make sure you know the basics of angel investing
- Make sure you meet regulatory requirements
- Know your risk appetite and your temperament
- Join an angel network, such as Lagos Angel Network or African Business Angel Network
- Write a check or transfer funds for your first seed investment
- Sit back, relax and let your money work for you in the long term
Basics of Angel Investing
Who are Angel Investors?
Angel investors are wealthy people who use their personal assets to invest in startups.
They typically invest in early stages of startups, before venture capitalists.
Most angel investors are people who have previously run startups. Or people who have held a senior executive position and are now retired.
For example, after many years of working in senior executive positions, the father of angel investment in Nigeria, Tomi Davies, invested in his first startup in 2012.
Since then, Davies has now made investing in startups and mentoring new angels into a profitable career.
7 Features of Angel Investing
Angel investors provide startups with funds ranging from $25,000 to $1.5 million.
For example, Kendall sold his house in Canada at an undisclosed amount to invest in Paystack.
This drives the point that seed-funding by angel investors range from $25,000 to $1.5 million.
2) Motivation to Invest
If you’re keen on becoming an angel investor in Nigeria, you must make sure you have the right motivation.
Angel investors do not just throw money at startups because of expected returns only.
They invest for psychological benefits, too. For example, bragging rights at parties (“I invested in Paystack! So I’m a genius), and love for coaching other startups…
Angel investors prefer to hide themselves and the amount invested in startups.
Those angel investors who disclose everything do so because they want to probably start an angel or VC fund so they want people to see them as great investors.
To meet most angels, you’ll need to join an angel network or group.
4) Key Reasons to Invest
Angel investors invest only when they like the startup founder. Angels typically look for founder experience, competence and passion.
They also look at if a startup has a sustainable competitive advantage.
5) Investment Vehicle
Angels throw money at startups. In return, the startups give them equity (a piece of the business in form of ownership right).
This equity is usually common or preferred stock.
6) Target Equity Percentage
Angels get between 10 – 30% equity after funding a startup.
7) Target Exit Time
Most angel investors don’t sell their equity or position in startup until after 5 – 7 years.
5 Types of Angel Investors
1) Guardian Angel
Guardian angels have relevant industry expertise. They are also actively involved in helping the startup achieve success.
Startup founders can leverage their strong network and experience to grow the startup.
2) Operational Angel
Operational angels have experience working in senior executive positions for major companies.
Founders can leverage their experience to scale the startup by avoiding common mistakes new startups make while scaling.
3) Entrepreneur Angel
Entrepreneur angels are angels that have started and run a successful business before. They can add value to new startup founders by way of mentorship.
4) Hands-off Angel
Hands-off angels are angels that have funds to invest but don’t have the time, network or experience to give to founders.
This is where most angels fall. For example, a wealthy doctor, lawyer, or accountant may decide to invest some idle cash in new businesses with high upside.
Regulatory requirements for becoming an angel investor in Nigeria
If you live in Nigeria or most countries in Africa, you’re in luck. There is currently no regulatory bottleneck to becoming an angel investor.
In the US, for example, the Securities Exchange Commission (SEC), has a rule for accredited investors.
SEC Rule 501 states that an “accredited investor” is a person with a net worth of at least $1 million or annual income of at least $200,000 in the most recent two years or combined income with a spouse of $300,000 during those years.
SEC Nigeria, the regulatory body for investment in Nigeria, only has a requirement page for venture capital managers. None for angel investors.
However, if you choose to join an angel group or network, such as Lagos Angel Network or African Business Angel Network (ABAN), there are a few requirements you must fulfill.
Here is a summary of requirements for African Business Angel Network (ABAN).
Risk appetite and temperament for angel investors in Nigeria
Do you know your temperament? Take a quick temperament quiz to be sure you’re well-suited for angel-investing.
To be a good investor, you need to have the ability to sit on an investment until it turns out good.
Risk and expected return tend to be related: the greater the perceived risk, the greater the required return.
If you’re just starting out, you need to measure your risk profile.
Nigerians can have any of the three major risk profiles below…
1) Risk Averse
People who are risk averse don’t like taking risks.
They would prefer to keep their money in the bank and earn less than 8% per annum, instead of investing in a startup.
They see startups as very risky.
If you are risk averse, becoming an angel investor in Nigeria may not be for you.
Growing wealth as a risk averse person is hard. And most likely impossible!
2) Risk Neutral
People who are risk neutral don’t care whether risk exist or not.
They make choices based on their emotions. If they like what they see or what they hear, they throw money at it.
Risk neutral people succeed from luck rather than from rational decisions.
3) Risk Taker
To understand risk takers, take a look at this description from study.com.
“A risk taker is someone who risks loss or injury in the hope of gain or excitement or accepts greater potential for loss in decisions and tolerates uncertainty. They have heightened expectations, a need for constant learning and an enjoyment of gambling, while also embracing change and trusting their instincts.”
Risk takers make good angel investors.
Angel Networks or Angel Groups
You’re better served if you join an angel network or group.
Trying to succeed at angel investing on your own as a newbie in Nigeria is playing on hard mode.
Most angel networks let you start with much less funds ranging from $1,000 to $20,000.
3 Structures of Angel Networks or Groups in Nigeria
Here are 3 structures of Angel Networks or Groups in Nigeria.
1) Legal Entity
In this type of angel network or group, each member of the group owns a portion of the legal entity representing the group. This is usually the case in most investment partnerships.
2) Limited Liability Companies
In this type of angel network or group, a limited liability company is formed by individuals in order to invest in specific deals. There are a ton of such companies all over Africa right now.
3) Non-Profit Entity
In this type of angel network or group, the group is a non-profit entity and individual angels invest independently.
A good example is the Lagos Angel Network (LAN). If you visit the Lagos Angel Network website, you’ll see clearly where it states:
“The Lagos Angel Network (LAN) is a “not for profit” entity set up for the purpose of organizing seed funders (“Business Angels”) to invest in start-up businesses.”
Write a check or transfer funds for your first seed investment
After you have learnt about angel investing, understood the regulatory requirements, measured you risk appetite and joined a good angel network, the next step is to write your first check or transfer funds to the first start up you want to invest in.
Your angel group or network will guide you on how best to structure the deal and make the transfer.
Listen to them.
Play the Long Term Game
Most angel investments have a life span of 5 – 7 years.
So you must have the patience to sit through these years as the business grows into something you’ll be proud of.
If you can wait it out, every company of value eventually makes it big. And as an angel, you just get to enjoy a slice of their success.
Don’t believe me?
Here is Jason Njoku, angel investor in Paystack, sharing his testimony.
The angels who invested in the seed round of Paystack back in 2016 made ~1,440% ROI.
That’s x14.4 their money in only 5 years.
Now, tell me which other investing opportunity can beat that!
Why not try becoming an angel investor today?
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