It is no secret that the Nigerian economy has suffered from a very low Gross Domestic Product and high unemployment rates. This means that many Nigerians have been looking for alternative ways to make money and achieve their dreams. One of these alternate methods is starting a business. However, it can be challenging to start a business without any capital or resources available. Venture Capitalists in Nigeria invest in small businesses to generate more revenue and generate jobs through economic development.
Who Is A Venture Capitalist
Venture capitalists are usually private individuals who invest in small businesses or projects with high growth potential. Venture capitalists typically invest their money into various types of companies, both public and privately held. They may also be referred to as angel investors, depending on how they operate. These individuals don’t come from the same backgrounds; they include wealthy professionals, business owners, entrepreneurs, etc. There are three ways venture capital can be used:
- To finance new ventures
- To help transform existing firms by making acquisitions
- To increase investments in an already financed firm
The primary goal of a venture capitalist is to generate significant returns on investment (ROI). Usually, when these investors agree to take part in financing your company, there will always be certain terms included within the contract, which you should read carefully. Many startups fail once they receive seed funding from an investor; this may cause you to lose your initial investment; however, if successful, there will be many benefits for both parties involved! In addition, you should note that these types of investments offer no guarantees or protection against losses because part of entrepreneurship involves taking risks.
Many venture capitalists can be found on websites such as Angel List, CrunchBase, etc. However, it is essential to note that not all investors are advanced money for equity shares or interests within a company.
Venture capitalists serve as catalysts for economic development because these individuals create jobs by investing money into various public and privately held projects throughout Nigeria. Often when people think of capitalists, they assume that it is someone with a lot of money who enjoys spending big bucks on expensive goods and services; however, there are many types of venture capitalists in the world. It’s also worth noting that these individuals typically invest their funds into various business ventures rather than loaning out or borrowing money from banks or other financial institutions!
Venture Capitalists play an important role in funding startup companies by providing much-needed capital for new businesses looking for seed funding. So, be sure to consider talking with one if you’re interested in investing some time and effort into building your very own company!
The bottom line: Venture Capitalists play a crucial role when it comes to investing in small businesses!
Characteristics of Venture Capitalists
- They are interested in innovative ideas or projects that could expand an existing business.
Venture capitalists invest money to increase their capital, and they expect a return on investment (ROI) within about five years. They go into another investment round which is the next stage for them. However, if it doesn’t perform well at all times, investors will be allowed to cut losses after the expiry date given by the firm’s board directors. It means that venture capitalists may not immediately jump ship when things get tough; instead, they can exercise patience with startups because there isn’t any other option available currently.
- Venture capitalists have a small number of investments.
Venture capitalists usually have about three or four investments per year. They also tend to be more aggressive in their search for promising startups than most other investors because they are not as diversified across different markets and industries. Therefore, what is suitable for one company may be bad for another venture capital firm’s portfolio.
- Venture capitalists are very selective with the companies they choose to invest in.
Venture capitalist firms tend to be highly risk-averse and thorough throughout their due diligence process before committing significant amounts of capital. It implies that any company that has not passed through this stage is unlikely to invest from venture capitalists even if it shows great growth potential. The latter makes them more expensive than other forms of financing because investors make sure they get great returns on their investments. They spend time investigating an applicant’s business plan before deciding whether or not the business idea will work out as planned.
- They invest in established companies.
Venture capitalists like to deal with startups with a proven track record of success and growth, preferably one or more dominant market positions, which indicates that the business has staying power beyond its initial development stage. Venture capital firms are generally not interested in new ideas because there isn’t any proof they will work until they get off the ground and begin generating revenue for their shareholders. In Nigeria, this usually means it’s less likely to find venture capitalists willing to finance your startup unless you already have some brand recognition within your community or industry. And a strong management team behind you who know what they’re doing from day one. So be prepared!
- They generally do not like risk.
Venture capitalists are very concerned about protecting their investment. Therefore they require high levels of security to reduce the probability that their capital will be lost due to an unforeseen event or circumstance. It could significantly affect a startup’s ability to repay its loans and other debts on time while maintaining positive cash flow for future investments. The latter implies that venture capitalists usually insist upon receiving common stock to align themselves with the management team, even if it means diluting their ownership position by giving away shares at lower valuations than would otherwise generate during another financing round. Some entrepreneurs worry this practice may deprive them of valuable control over the business, which is unlikely because most VCs lend money based on personal relationships built over time and not just by throwing money at a business.
Differences Between Venture Capitalists and Angel Investors
Capitalists and angel investors both invest money into new businesses; however, there are several differences between them, including:
|Factor||Venture Capitalists||Angel Investors|
|1. Type of investment||Capitalists typically make bigger bets on fewer companies.||Angel investors can afford to spread out their investments over many smaller deals (about 20) at a time. This means it’s less risky because they can diversify their investments to minimize risk.|
|2. Capitalization||Capitalists can provide more capital than angel investors, generally between $500,000 and $50 million. This means they can get more done with one investment round because it includes hiring employees or buying equipment.||On the other hand, angel investors typically invest around $25K-$250K per project while sacrificing equity stakes in lower returns. It’s because there’s no chance that each company will return huge ROI unless a highly successful startup comes out from all 20 companies invested by angels during this period.|
|3. Focus||Capitalists tend to focus on technology-based investments. This means that venture capital firms would rather bet big with one investment round instead of spreading their risk out over time by investing in several different companies at once. It’s less risky for them because there are currently many opportunities, giving them enough leverage, especially when they’re trying to buy new companies before other potential competitors do so. The latter increases their chances of success during negotiations about purchase price/terms and gains access to proprietary technology, new product lines, or other intellectual property (IP) that they can use to grow their own business.||Angels typically invest across multiple sectors including real estate and media markets.|
|4. Investment Return||This is the primary concern for capitalist investors. This means capitalists usually put money into things they understand well to minimize risk factors since there’s a lot at stake when one makes such investments. Unlike angel investors who can afford to experiment more often because they have a lot of other investments going on at the same time, so it’s not as risky for them.||Angel investors are more concerned about impacting society, especially by empowering entrepreneurs with money and guidance that will help them get started and assisting in the way until the project becomes profitable enough where it can stand on its own.|
|5. Investment Stage||Capitalists tend to focus on later-stage deals since those are less risky and provide greater returns than angel investors. It makes the initial investment amount much smaller until the company becomes successful enough where founders feel comfortable asking for additional capital from angels/venture capitalist firms.||Angel investors typically invest in early-stage companies that don’t yet have products or services available, in addition to being very young with little business experience. They usually look for opportunities during earlier stages when founders need money fast before the product is ready, especially if there isn’t any revenue coming in yet.|
Venture capitalists are important in the business world because they provide financial support for later-stage companies. They also play an active role in the company, especially by helping to organize upper management. Without them, small businesses would not exist because many don’t have access to traditional forms of financing like loans and the money necessary for further development. Venture capitalists help with initial funding as well as growth support. They can also be helpful when it comes to attracting strategic partners or customers that will bring insight into new markets. In conclusion, venture capitalists are the driving force behind the growth of small businesses into more giant, more successful corporations.