Many successful businesses received their earliest growth capital from individuals willing to support them before banks or large investment firms considered them ready.
An angel investor normally uses personal money to support an early-stage business in exchange for shares. Beyond money, they may provide industry knowledge, introduce customers and connect founders to future investors.
Angel investment has played an important role in Nigeria’s startup ecosystem. Lagos Angel Network, established in 2011, says members of its community have backed businesses including Paystack, Flutterwave and Andela. Angel-backed businesses also operate across agriculture, healthcare, financial services, media and other sectors.
Angel investment is not only for technology companies. However, investors generally want businesses that can grow significantly and eventually give them an opportunity to earn a return.
How Does Angel Investment Work?
Angel investment is different from a bank loan.
A bank expects repayment with interest. An angel investor normally receives part of the company. They make money if the business becomes more valuable, pays dividends or creates an opportunity for them to sell their shares.
The money may not require monthly repayment, but it still has a cost: ownership.
Understand What You Are Giving Up
Suppose an angel investor offers ₦25 million for 20% of your business.
The offer values the company at ₦125 million after the investment:
₦25 million ÷ 20% = ₦125 million
The investor owns 20%, while the existing shareholders keep 80%.
Do not focus only on the money entering your account. Ask whether the valuation is reasonable, which rights come with the shares and how your ownership may change during future funding rounds.
If new shares are issued later, your percentage may reduce again. You could own part of a more valuable company, but a smaller percentage of it.
Look Beyond the Money
The right angel investor may bring experience and relationships that would take the founder years to build.
The wrong investor may interfere constantly, delay decisions or push the business in a direction you do not support.
Before accepting an offer, ask:
- Has this person invested in similar businesses?
- Can previous founders describe working with them?
- What can they provide beyond money?
- How involved do they expect to be?
- When do they expect a return?
Do not accept an investor simply because they are the first person to show interest.
Read the Terms Carefully
An offer of ₦25 million for 20% may sound simple, but the other terms can matter just as much.
Will the investor receive a board seat? Which decisions require their approval? Can the company borrow, hire a senior employee, issue new shares or sell major assets without their consent?
These details should appear in the term sheet and final agreements. Engage your own corporate lawyer before signing. The investor’s lawyer is there to protect the investor.
Prepare Evidence, Not Only a Pitch
A serious angel investor will verify your claims.
Prepare your CAC documents, ownership records, accounts, bank statements, tax records, major contracts and information about debts or disputes. Your pitch deck, accounts and bank activity should tell the same story.
Also explain how the investment will be used:
- ₦10 million for production equipment
- ₦6 million for stock
- ₦4 million for sales and marketing
- ₦3 million for two key hires
- ₦2 million as an operating reserve
Connect the spending to a result. Will production rise from 3,000 to 8,000 units monthly? Will the business enter two new states or sign 20 new distributors?
“Business expansion” is not specific enough. The investor should understand what the money will help the company achieve.
Use This Before You Say Yes Checklist
Before accepting angel investment, confirm:
- How much is being invested?
- What percentage will the investor own?
- What valuation produced that percentage?
- Which decisions can the investor influence or block?
- What value will they add beyond money?
- How can they eventually sell their shares?
- What happens if the relationship goes wrong?
Be cautious if a supposed investor pressures you to sign immediately, refuses to provide references or requests a large “processing” or “release” fee before transferring funds.
Angel investment can give a business the money, experience and connections it needs to grow. But it is not suitable for every business or founder.
Do not ask only, “How much are they investing?”
Ask, “What will this investment help us build, and what are we giving up in return?”
