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Dear reader,

IN THIS ISSUE

• How To Raise Capital For Your Business

• Nigeria’s Manufacturing Output Hits ₦33.43 Trillion In H2 2024

DEEPTHINK

How To Raise Capital For Your Business

The foundation of any successful business lies in its ability to secure adequate financing.

This particularly true at the beginning, when you start with little or no business experience and have not demonstrated an ability to make money.

In this newsletter, we explore the various means available to raise capital for your business.

1. Sweat Equity

Many businesses begin with founders who have the skills to run their business as “one-man-shows,” long before the business is able to hire staff and expand operations. This approach leverages your expertise instead of financial capital.

For example, when someone trained in software engineering can build an application prototype from the comfort of their home and present it to potential customers.

If you are cash-strapped but possess the skills needed to start your business, sweat equity is a powerful way to launch your venture. It enables you to contribute your labour, skill, and time, as opposed to cash, towards the start and growth of your business.

2. Personal Savings

Nothing beats the founder’s own resources when starting a business. Before you start looking for investors or consider borrowing, you need to assess your own resources and determine how much you are willing to commit to the business.

The more of your own money you invest in the business, the easier it will be to attract investors and lenders. Investors and lenders are more comfortable working with entrepreneurs who are invested in their business and literally have “skin in the game.”

3. Friends And Family

The advantage of borrowing from friends and family is that they will often provide capital on terms that you are not likely to get elsewhere.

Friends and family can give you money based on goodwill, without demanding interest or security, and will typically show understanding if the business goes through rough patches or fails.

For friends and family, the profit motive is secondary. Their primary desire for putting money in your business is to support you and help you succeed, not because they necessarily expect significant financial returns.

Best Practices When Taking Money from Friends and Family:

• Document everything clearly in writing

• Set realistic expectations about returns and timelines

• Maintain transparent communication about business progress

• Consider the relationship implications if the business fails

• Treat their investment with the same respect you would give a professional investor

4. External Investors

If you cannot raise sufficient funding on your own, you should consider bringing in investors who will put money in the business in exchange for shareholding.

An investor shares in the profits or losses of the business. Thus, an investor may demand a say in the running of the business. The choice of an investor goes beyond simply seeking to acquire investable funds. You should also consider the expertise and guidance that the business needs to succeed, and how potential investors can add value beyond bringing money.

Be scrupulous in your search for investors by paying special attention to how well you know them, the expectations they have for you, and how involved they want to be in the business.

5. Angel Investors

Angel investors are typically wealthy individuals who provide capital for startups, usually in exchange for ownership equity or convertible debt. They are willing to fund small operations and offer more flexible terms, besides contributing their experience and relationships.

Potential angel investors can be accessed through introductions from other start-up founders, live pitch events and startup competitions, online platforms dedicated to connecting entrepreneurs with investors and industry networking events

A list of potential angel investors for your business can be found here

6. Venture Capitalists

Venture capitalists are the guardian angels of entrepreneurs in search of substantial funds for their businesses. They are reputed to carry the biggest cheque books and possess a huge appetite for risking money to fund new businesses in the hope of reaping rich rewards in case of success.

Venture capital firms typically invest in businesses that:

• Have high growth potential

• Address large markets

• Show traction or proof of concept

• Have an experienced management team

• Offer the possibility of significant returns (10x or more)

7. Bank Loans

Commercial banks are often the most unlikely sources of capital for start-ups and small businesses due to their risk-averse nature and collateral requirements. However, as your business gains traction, it could be in a position to access business loans.

If you have a good relationship with your bank, you may be able to convince your bank manager to give you a loan to grow your business. To improve your chances of success in getting a bank loan, you will need to maintain excellent personal and business credit scores, prepare a detailed business plan and financial projections, identify suitable collateral if required.

8. Government And Nonprofit Support

This includes grants, which are free and given by non-profit organisations, or funds from development finance institutions which are disbursed on concessionary terms to entrepreneurs who meet specified criteria.

These funds can come in form of business grants, subsidised loans, business incubation programmes.

This article is extracted from The Small Business Handbook. Get a copy to get more practical insights about starting and running your business in Nigeria.

Action Steps

The funding path you choose should align with your business goals, growth timeline, and how much control you’re willing to relinquish. Many successful businesses use a combination of funding sources at different stages of their development.

If you need help connecting with investors and raising capital for your business. Contact us today!

WHAT’S NEW

Nigeria’s Manufacturing Output Hits ₦33.43 Trillion In H2 2024

Nigeria’s manufacturing sector recorded a 34.9% surge in nominal output, reaching ₦33.43 trillion in the second half of 2024, according to the Manufacturers Association of Nigeria (MAN). This sharp rise was largely due to inflation and higher domestic prices, not necessarily real production growth.

Releasing the MAN Economic Review for H2 2024, Director-General Segun Ajayi-Kadir noted that despite strong nominal figures, real manufacturing output (adjusted for inflation) saw only a modest 1.7% year-on-year growth, hitting ₦7.78 trillion. However, on a half-year basis, real output declined by 3.1%, reflecting ongoing industry challenges such as high production costs, weak demand, and price volatility.

Capacity utilisation improved slightly to 57% in 2024, up from 55.1% in 2023. Growth was mainly observed in sectors like automotive assembly, electronics, and non-metallic mineral products.

Local sourcing of raw materials rose from 52% in 2023 to 57.1% in 2024, due to foreign exchange shortages, high import costs, and government incentives.

Sectors such as wood, textiles, footwear, and pharmaceuticals benefited, although electronics continued to rely heavily on imports.

Investment in the manufacturing sector fell sharply by 35.3% year-on-year to ₦658.81 billion, reflecting economic uncertainty and investor caution. Still, there was a 19.4% recovery in H2 compared to H1, as some firms resumed spending.

Inventory of unsold goods soared by 87.5% to ₦2.14 trillion due to weak consumer demand, but fell by 27.9% in H2, indicating improved sales and pricing strategies.

Employment remained stable, with 34,769 new jobs added (up 1.8% from 2023), but employee exits also rose to 17,949, pointing to labour mobility and restructuring.

Power supply to manufacturers improved, averaging 13.3 hours daily in 2024, compared to 10.6 hours in 2023. However, Band A electricity tariffs more than tripled, increasing operating costs. Manufacturers spent ₦1.11 trillion on alternative energy, up 42.3% from the previous year.

Financing costs also surged, with average lending rates rising to 35.5% and pushing total finance costs to ₦1.3 trillion. High interest rates and limited credit access constrained business expansion.

Ajayi-Kadir called on the government to prioritSe policy stability, improve forex access, reduce energy costs, and lower interest rates to ensure sustainable growth in the manufacturing sector.

RESOURCES

HOW TO INVEST

Create A Bankable Business Plan

We help clients develop business plans suited to the Nigerian market. Our team will help you create a customised business plan, identifying opportunities, mitigating risks and outlining a roadmap for success.

BOOKS

The Small Business Handbook

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