According to estimates, 80% of newly established firms in Nigeria collapse in the early 18 months, and the most significant cause is inaccessibility to financing. Typically, startups and early-stage businesses do not possess direct exposure to conventional means of raising capital. Hence, the company may not have the means to purchase the drawn-out and laborious negotiation and paperwork approach necessary for conventional financing. Sometimes, the company may also not have the experience and information to attach benefits to the start-up, even if it is fortunate to locate investment. Accordingly, this article is geared toward helping you with negotiating an Equity Startup in Nigeria, as well as how to get investors for your startup.
How Do You Negotiate Equity in a Startup in Nigeria?
Always be ready when requesting equity in your Start-up. Do your homework in advance, be prepared for a new offer, and get an attorney to review your deal prior to finalizing any of it.
You should receive all you accomplished from your perseverance, assuming your startup is among the fortunate ones that moved through to achieve a huge deal. We will now take them step by step.
Step 1: Acknowledge the likelihood that a sizable payout is low.
It’s critical to realize that investing in a startup carries potential losses. Although the exact definition of failing varies depending on the situation, 90% of startups collapse, according to an often-touted survey. In other words, it’s very feasible that after negotiating for ownership, the firm may never have a stock purchase, and you may even receive zero. Hence, understand that investing in a startup is never a fast way of getting money since it requires a lot of labour. Furthermore, ensure you speak up and ask questions for clarification when bargaining.
Step 2: Endeavour to hold your negotiation.
Any business-related negotiation, even one involving equity, is a proper conversation that must be conducted either through telephone, email or any other recognized platform for communication. After all, individuals nowadays hear about employment through online forums, LinkedIn, and media platforms such as Facebook direct messages. The media platform’s pervasiveness in our professional lives could give the impression that anything regarding our professions is informal. Consequently, it is permissible to utilize emails to update on the specifics while negotiating equity.
Step 3: The Negotiation for Equity.
Your diligence would certainly pay off if the startup you founded at a preliminary stage turns out to be among the few businesses that are commercially strong. Therefore, you should negotiate a strong equity deal for this purpose. The most important factor to constantly tell yourself when operating a startup in its beginning phases is that you are close to funding.
Step 4: Recognize the Prerequisites for The Type of Equity You Receive.
Individuals routinely believe that most equities are directly comparable. Suffice to note that this is not true, in principle. Various kinds of equity may be provided to top executives, owners and joint associates, or even the founding ten employees in some companies.
In essence, this set of people represents a distinct category of equity that will benefit you more in the eventuality of a large payout. Hence, regardless of the type of equity company, be sure you comprehend all the terms and conditions.
Step 5: The Equity Proposal Should Be Reviewed by A Solicitor Prior to Your Signing It.
Hire a startup-focused attorney to review the deal when you request equity in the firm. Having a second opinion to review paperwork doesn’t hurt. It is recommended that you never ratify any paperwork that you or your solicitor have not reviewed or comprehended.
Step 6: Set aside some time to consider accepting.
You may feel pressured to sign an equity proposal immediately if you’ve been looking forward to hearing about it out of appreciation or pleasure. However, take time to consider if you desire to receive an offer, and doing so may require you to contact your friends again to acquire their opinion. By doing this, you can be confident that you don’t make a hasty decision and undersell yourself.
How do you negotiate Investment with some investors?
Negotiating with investors is pretty easy. These steps will guide you.
1. Maintain a Free Perspective.
While you don’t have to give in on every point, you could look for chances to engage or find common footing. If there is anything you cannot compromise on, consider why that is the situation and whether there is a better palatable method to achieve the exact result.
Alternatively, you could state you’re unwilling to give up on the problem but are open to changing your mind about a different word that equally affects your investors.
2. Show up from a trustworthy angle.
Quality investors will typically work alongside you to ally – they might not share your hobbies. Nevertheless, for them to be successful, your company must also be successful. Negotiations will be less combative and more productive if you keep in mind that all parties are essentially on the same side. That will serve your interests once the negotiations are over.
It would be best if you built credibility as well as having to be able to negotiate effectively. Your investors anticipate that you will negotiate favourable benefits and network with additional financiers.
3. Utilize what you already have.
Providing investors what they want will not result in long-lasting, mutual trust. You should and ought to protect the needs of your business. To be an effective startup equity owner includes doing that.
Use your skills to your advantage. If you don’t have many investors, you need other things like diplomacy or similar resources.
4. Achieve Timely Consensus
As a result of the situation’s vagueness, you would not intend to foster mistrust or animosity on either side. After a conversation, list the major agreements reached and the choices that were reached. Inquire about alignment and any misinterpretations you may have had. It’s easier to make sure you’re on the very same path right away.
How Do Start-Up Companies Get Investors in Nigeria?
Suppose you’re a start-up owner in Nigeria with a workable marketing strategy, and you’re fortunate enough to make it past the preliminary screening. In that case, the next step should be developing a financial model. The guides listed below explain how start-up businesses can get investors in Nigeria.
A request by email.
While gathering the emails of potential investors may result in one showing enthusiasm, this practice is not very common because other investors may view this as a phishing attack and choose to ignore you. For those who decide to try it, there are websites that provide the emails of angels and investors.
Angel Organizations of Angels
Numerous investment organizations exist, and the financiers who belong to such organizations are known as angels.
Investors increasingly establish organizations solely dedicated to supporting aspiring business owners. Having a properly produced company strategy, one can approach investment organizations and convince an angel investor to fund the project. It is comparable to receiving an agreement.
Media Platforms.
Investors are now among most people in the 21st century who have accounts on one or another media site. LinkedIn is primarily for job reference and engagement, but the site appears to take the lead in forming Startup-Investor connections. You may utilize LinkedIn or any similar media platform to find investors nearby.
How do investors negotiate equity?
Investors examine the firm – they get to know about your Start-up Equity.
Investors can decide if a firm has a high probability of potential profitability by learning more about it.
The investors attempt to review the entrepreneurial strategy of the firm: The company’s objectives, the plan for achieving them, and the anticipated completion dates are all explicitly indicated in the proposal.
Investors study more on similar businesses – they make research.
Researching the pay scales offered for positions with comparable responsibilities at other companies may be a component of the investors’ inquiry. Hence, investors make an effort to focus their studies on remuneration plans at comparable businesses. In this case, instead of comparing your deal to that of large organizations, they may evaluate it to similar startups if the business proposal is from a small business.
Investors thoroughly examine the proposition.
Investors should consider requesting a proposal letter. Since they can now evaluate the exact details of the proposed equity at their leisure, the proposal is simpler to bargain lawfully.
Investors may consult an accountant, a solicitor, or both when they require assistance understanding specific provisions of the written proposal. The accountant could assist in determining the firm’s economic prospects, the prospective tax liabilities associated with their equity, and the prospective economic advantages and dangers of their equity proposal.