venture capital
Venture capital is money invested in young companies in exchange for ownership, in the hope that a few of them become enormous.
In plain English
Venture capital is not a loan and it is not a reward for being clever. It is a bet, made at scale, by people who expect most of their bets to fail.
A venture fund invests in perhaps thirty companies. They expect many to die, several to survive without exciting anybody, and one or two to become so large that they repay the entire fund several times over.
That arithmetic explains everything they do. They are not looking for a good business. A good business that grows steadily and pays its owner well is a wonderful thing and it is useless to them, because it cannot return their fund. They need the possibility of something enormous.
Which means taking their money is a decision about what kind of company you are agreeing to build. You are now committed to growth at a pace that suits their model, whether or not it suits your life.
It has built extraordinary Nigerian companies and it has broken founders who never wanted that race. The money is real, the expertise is often real, and the ownership you hand over never comes back.
Take it when you genuinely need it to win. Never take it because it is available.
A fund invests ₦500 million for 20 percent of your company. They now need your business to be worth many billions for the investment to make sense to them. Building a comfortable, profitable ₦2 billion business is a success for you and a failure for them, and they will act accordingly.
Questions people ask
What do venture investors look for?
A large market, rapid growth, a defensible advantage and a team that can execute. They are buying the possibility of an enormous outcome, not a steady one.
What is dilution?
Every new investment issues new shares, so your percentage shrinks. Owning less of a much bigger company is fine. Owning less of the same company is not.
Should most Nigerian businesses raise venture capital?
Almost none should. Most businesses need customers, not investors, and customer money costs you no ownership at all.
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