How to get funding for startups in Nigeria

Are you a startup founder looking for capital funding for your company? Perhaps you have approached several banks trying to get a loan, only to face utter rejection. Read on, the next few paragraphs will answer all your questions about startup funding in Nigeria.

Inasmuch as there is no free money anywhere, there are several ways an entrepreneur can raise funding for a startup in Nigeria. Listed in this article are 8 different ways to get funding for Startups in Nigeria.

Startup funding is a continuous process whereby an entrepreneur tries to grow his company by securing external financial investments into the business. This is usually done in series ranging from pre-seed, seed, series A, B, C, D, and E funding. Depending on the growth stage of the startup and what the capital raised will be used for.

A startup is an innovative business that usually involves technology, and whose aim is to develop a new product, service, or provide cutting-edge solutions. Startups have scalable business models and although still trying to get off the ground, they possess the potential for big market impact.

8 ways to fund your startup in Nigeria

Here are ways to fund your startup in Nigeria:

1. Bootstrapping

The first place to source for a startup’s funding is the entrepreneurs themselves. Their personal savings, friends, and even, family input. That is what bootstrapping means.

It simply means building a business from scratch using only available resources with minimal external financing.

Every startup needs lots and lots of initial capital injection before the business can stand. The money will be used to build product MVP, test the market and redefine the final product to suit the preferences of the target customers.

Therefore, as an entrepreneur putting money into your startup simply means you are passionate and dedicated to seeing it work out profitably. The singular act shows that you believe in the probability of succeeding, enough to fuel it with your money. 

Friends and family might be skeptical to believe in a startup at first, especially if it’s a radical idea. You can buy them over with real offers of equity percentage or SAFEs.

2. Business Loans

Another way to get startup funding in Nigeria is by taking out small business loans from banks and other financial institutions. A small business loan might not cover startup costs for a long time but it can go a long way to getting your startup off the ground. Especially for seed-stage expenses like building and developing products, paying salaries for founders, and marketing costs.

However, one major downside of loans is the short recovery period. Most microfinance banks have less than a year of recovery period and it does not matter if the business is making a profit or not.

This can cause a startup to be put under pressure to start making profit instead of focusing on achieving a product-market fit.

Read: Top 10 business loan providers in Nigeria

3. Angel investors

Business angels are people who pool resources together to invest mostly in pre-seed and early-stage startups. It normally attracts a higher level of risk for investors but it’s a guaranteed way for startups to get funding in Nigeria. An example of an angel investor is the Lagos angel network.

There are also individual angels who are passionate about investing in the growth of tech startups in Nigeria and beyond. Investors such as Olumide Soyombo, Adentunji Eleso, Kola Aina, Femi Kuti, Lamide Adeosun, Adegoke Olubusi, Michael Okaredje, Jason Njoku, and many others.

4. Venture capitalists

Venture capitalists are similar to angel investors except for some differences. VC firms mostly invest in startups that already have some level of market traction and need funding to scale.

Top VC firms in Nigeria include Leadpath Nigeria, Greenhouse Capital, Microtraction, TLcom capital, Greentree investment company, and Future Africa.

Read: Top 10 Venture Capital Firms in Nigeria

5. Business incubator and accelerator programs

Business Incubators provide everything a startup needs to grow and scale including funding opportunities. While the goal of every accelerator program is to accelerate the startup’s growth.

They provide mentorship, startup training, networking opportunities, and a community of skilled personnel for startup companies.

Top incubators and accelerators where founders can get startup funding in Nigeria are Co-creation hub (CC HUB), Wennovation hub, passion incubator, founder institute, 440NG, and L5LAB.

6. Bank of Industry

The Nigerian Bank of Industry (BOI) is a federal government initiative that was created to provide capital funding for startups, small, medium, and large-scale enterprises in Nigeria.

The bank supports start-ups by way of providing equipment financing and working capital loans. The funds can be used to start up new businesses, scale up existing ones, diversify product offerings and as well, and expand to new markets. The website to apply is boi.ng.

Who can apply for a BOI loan?

• Applicant must be a Nigerian.
• Must be at least 18 years old but not more than 35.
• Applicant must possess proof of identity such as driver’s licence, national identity card, voters card, or international passport.
• Must have a feasible business idea to be operated (or operating) within Nigeria.

Read: How to get a loan from the Bank of Industry (BOI)

7. Startup grants

Getting a grant is a good way to access startup funding in Nigeria. One main benefit of grants is that they do not attract payment of interests or regular repayments. You simply get the money and build the business of your dream.

Though hard to come by, grants do not attract any terms and conditions. Nor require forfeiture of part equity like other sources of startup funding do.

Top business grants in Nigeria include Africa’s young entrepreneur empowerment Nigeria (AYEEN), Tony Elumelu Foundation entrepreneurship grants, Shell livewire and many others.

Read: Best places to get grants in Nigeria for business or ideas

8. Crowdfunding platforms

A crowdfunding campaign is another great way to raise startup funding in Nigeria. Websites like farmcrowdy, kobotalk, porkvest, porkmoney, thriveagric and a host of others are good places to raise capital for an agro business.

Other crowdfunding platforms include Kickstarter, Indiegogo, lending club, GoFundMe, Patreon, Crowdfunder, Naijafund, MicroVentures, Quickraiz, and CircleUp. Crowdfunding provides flexible capital, less restrictions and the founders can set the conditions themselves.

Read: Top crowdfunding sites to get funding for your ideas in Nigeria

Can a business get funded with only an idea in Nigeria?

So many people have asked whether businesses in their ideation stage get funded by investors too?

The answer is yes, it is possible to get funded with only an idea and a business plan. Although, that is very rare and happens in only some cases. Looking at it from an investor’s perspective, you may get funded if your business has a lot less risk of market failure.

That’s in addition to the potential for making a massive profit. Nobody likes to lose money in a bad investment, so also do investors. If the risk of investing in a startup seems higher than the potential gain to an investor,  you might not get the funding you need. 

On the bright side, a scalable business idea if supported by positive market metrics of response to your product, and a promising team might earn you some points before an investor. 

conclusion

Technology startups in Nigeria today are harnessing the numerous opportunities available for funding both within and outside the country.

In February, the first 100% digital insurance startup company in Nigeria called Cassava secured $4 million in pre-seed funding. Another company, Drugstoc raised $4.4million Series A round in January. This is proof that startup funding is not as difficult as it seems in Nigeria.