Raising capital is often the biggest challenge that entrepreneurs face when starting or scaling a business. Loans and grants are funding sources they could explore, but these come with strings attached—conditions which many are hesitant to agree to. As a result, equity investment in Nigeria is increasingly becoming a popular alternative.
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But before you offer a slice of your company to investors (which is what this entails), it’s important to understand what it really means and the long-term implications for your business.
What is Equity Investment in Business?
Equity investment in business is the process of giving investors ownership shares in exchange for capital. Instead of lending you money (as is the case in debt financing), investors buy into your company and become part-owners. This can be a great way to raise funds, but it comes with responsibilities and trade-offs.
In Nigeria, equity investment is growing in sectors such as FinTech, agribusiness, and e-commerce. Investors looking for high-growth opportunities are increasingly doing deals with startups in these segments. Unfortunately, many founders rush into giving away equity without fully considering its consequences.
Here are six key things you should weigh before making the decision:
Equity Investment vs Debt Investment
The first thing to understand is the difference between equity and debt.
- Debt investment (like bank loans or microfinance credit) requires repayment with interest but leaves you with full ownership of your business.
- Equity investment gives investors ownership stakes, meaning they share in your profits, and may sometimes influence your decisions.
Ask yourself this question: would it be better to maintain full control and take on debt, or bring in an equity partner who shares both risk and decision-making power? Your honest answer to this question should help you decide whether you go ahead with seeking equity investments or not.
How Much Ownership Are You Willing to Give Up?
Equity is not free money. The more shares you sell, the less control you retain. Some Nigerian founders have learned the hard way that giving up too much equity too early can make them minority owners in their own businesses. Always calculate the long-term value of your company before deciding what percentage to give away.
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What Type of Investor Do You Need?
Not all equity investors are the same. Some bring only money, while others provide strategic value, such as access to networks, mentorship, or international markets. In a business environment such as Nigeria’s, working with the right investor can open doors far beyond financing. So, before signing any deal, determine the extent to which the investor aligns with your vision.
Legal and Regulatory Considerations in Nigeria
Equity deals are binding contracts that require proper legal documentation. In Nigeria, investors often demand shareholder agreements, board seats, or voting rights. Before agreeing, you should consult a lawyer who understands corporate law and the Companies and Allied Matters Act (CAMA).
Never finalise an equity deal with just a handshake. Also, you need to understand the details of any proposal or final agreement. Assenting to such things without studying and grasping them could cost you dearly in the future.
Impact on Decision-Making
When you accept equity investment, you may no longer have the final say in all business matters. Investors might require financial reporting, veto power over major decisions, or influence on company strategy. If you value independence, be cautious about how much authority you are willing to share.
Exit Strategy and Long-Term Vision
Equity investors usually expect returns, often through dividends, company growth, or eventual sale of the business. You need to be clear about your long-term vision. Ponder these questions:
- Do you plan to sell the company someday?
- Will you go public with an IPO and list shares on an equities exchange (e.g. NGX)?
- Or do you intend to remain a private, family-owned business?
Your answers should enable you to decide the type of investors you should approach.
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Final Words
Equity investment in Nigeria allows entrepreneurs to access funding without the immediate burden of repayment.
On the flip side, giving away equity is one of the most important decisions you will ever make as a founder. You need to understand the trade-offs involved. If things aren’t clear to you, seek professional guidance.
Make sure your aims and those of potential investors align, so that raising capital doesn’t threaten your long-term interests.
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