Economy
How to Avoid Rookie Mistakes When Looking for Investment
By Philani Mzila
In the startup universe, one of the most valuable (if not the most valuable) finite resources you have at your disposal as a founder is equity. This is because startups generally don’t have the capital to scale in the market or products developed significantly enough to leverage to fund ongoing enterprise growth.
This makes your startup’s capitalisation table (cap table) an integral representation of how your venture is funded from an equity perspective (including convertible notes, warrants, and equity ownership grants). The cap table represents how much of a claim each party has on the value created by the business and what they paid for their ownership stake. Managing the cap table well is, therefore, a strategic imperative for any startup founder. As a startup scales, the evolution of its cap table has serious implications on how easily the venture can attract and raise new investments.
Cap tables and investor risk tolerance
At the beginning of a startup’s journey, the founding team owns 100% of the company. Depending on the resources they have available, founders tend to self-fund the venture as much as possible (called bootstrapping) up to and including the pre-seed stage in order to protect their equity value. At some point, however, the resources they have can only take them so far, and they need to raise external capital.
At the pre-seed stage, a startup hasn’t necessarily found product-market fit, and its revenue is often not the best measure of its potential because founders are honing their minimum viable product. At best, the venture has signals of product market fit, i.e. user growth, engagement and active usage and retention. The lack of product-market fit and bankable recurring revenue is typically a deterrent for investment by later-stage investors due to their inherently lower risk tolerance.
This is where angel investors and early-stage venture capital (VC) firms step in. Angel investors are high-net-worth individuals who are highly risk-tolerant and have the financial means to invest in startups and their potential future returns at the right price. That “right price” is usually an ownership stake in the business, ranging anywhere between 5 and 15%, with that percentage being a symbol of the risk angel investors accept in return for their capital and operational expertise. Early-stage VC firms, on their end, typically provide additional institutional capital, operational and governance support as well as credibility to ventures.
Angels and other types of early-stage investors, like Founders Factory Africa, play a vital role in the VC ecosystem. Without the high-risk tolerance these investors bring to the table, most early-stage startups would not break out of the pre-seed stage due to a lack of funding.
The role of a term sheet at the point of investment
Given the importance of a startup’s cap table in its future trajectory, it’s worth highlighting the vital role a VC term sheet performs at the point of investment. A VC term sheet is a document that outlines the terms and conditions of a VC investment. It includes details on the amount of money to be invested, the equity being granted to investors, the timing of investor liquidity, and investors’ rights in the venture.
Some of the key terms founders and investors must be familiar with when reviewing this document include:
Valuation – The value of the company which is being used as the basis for the investment.
Pre- and post-money valuation – The pre-money valuation is the value of the company prior to the investment, with post-money valuation is the value of the company after the investment.
Voting rights – A representation of how much say investors have in the future strategic direction of the business.
Liquidation preference – This is a clause that determines the order in which investors and founders are paid back in case of liquidation or bankruptcy. Be aware: liquidation preference typically relates to any liquidity event, not just a liquidation.
Anti-dilution-provisions – These clauses can help protect investors from dilution because of a future financing round of financing. They can have the effect of decreasing a founder’s shareholder value.
An alignment of interest with the future in mind
As both an investor and a venture builder that helps startups improve their product and find product-market fit, at Founders Factory Africa, we often advise founders to be extremely careful when exchanging equity for capital. When an investor decides to invest in a startup, they are looking for an alignment of interests where the founders can make a meaningful return for starting and scaling the venture, thereby providing a higher chance of a successful exit for the investor.
Some of the errors we typically see include founders raising their initial funding at too high a valuation. This creates unrealistic expectations for future funding rounds. At times, founders ask for too much capital without deep thought into what metrics and milestones they would like to achieve with the capital, leading them to give up too much equity very early on without considering the need for future funding rounds. These scenarios, in turn, stunt the venture’s ability to raise funding and scale due to the lack of alignment of financial interests with investors.
As a startup matures and goes through its different funding rounds, the equity allocated to founders is diluted as larger sums of investment are raised at Series A, B, or C. If the cap table is not thoughtfully constructed, the startup may find it increasingly difficult to raise capital as questions around incentives for later-stage investors increase.
The startup ecosystem is binary. Either a business grows and succeeds, or it fails. There is no in-between. The value that a startup places on its equity, and the partners they choose on its journey and collectively creates is the golden thread that runs through every startup’s success or failure. A thoughtful cap ensures that a startup can become successful. A badly designed cap table can do the exact opposite.
Philani Mzila is an Investment Manager at Founders Factory Africa
By Adedapo Adesanya
In a major boost to capital market regulation in Nigeria, President Bola Tinubu recently assented to the Investments and Securities Bill (ISB) 2025, which repeals the Investments and Securities Act No. 29 of 2007 and enacts the Investments and Securities Act 2025.
This landmark legislation strengthens the legal framework of the Nigerian capital market, enhances investor protection, and introduces critical reforms to promote market integrity, transparency, and sustainable growth.
The news has sent ripples of excitement across the capital market landscape in the country as it will regulate the market to ensure capital formation, protect investors, maintain a fair, efficient, and transparent market, and reduce systemic risks.
The Act reaffirms the authority of the SEC as the apex regulatory authority of the Nigerian Capital Market, as well as to The Act also introduces transformative provisions to further align Nigeria’s market operations with international best practices.
According to the Director General of the SEC, Mr Emomoitimi Agama, said, “The Act enhances the regulatory powers of the SEC in a manner comparable to benchmark global securities regulators.” These enhanced powers and functions ensure full conformity with the requirements of IOSCO’s Enhanced Multilateral Memorandum of Understanding (EMMoU), enabling the SEC retain its “Signatory A” status and enhancing the overall attractiveness of the Nigerian capital market.
He said that other notable provisions of the ISA 2025 include the Classification of Exchanges and the inclusion of provisions on financial market infrastructures. The Act classifies Securities Exchanges into Composite and Non-composite Exchanges – A Composite Exchange is one in which all categories of securities and products can be listed and traded. At the same time, a Non-composite Exchange focuses on a singular type of security or product.
There are also new provisions on Financial Market Infrastructures, such as Central Counterparties, Clearing Houses, and Trade Repositories.
Other highlights of the Act are the Expansion of the definition and Understanding of Securities. The Act explicitly recognises virtual/digital assets and investment contracts as securities and brings Virtual Asset Service Providers (VASPs), Digital Asset Operators (DAOPs) and Digital Asset Exchanges under the SEC’s regulatory purview.
The Act introduces provisions for monitoring, managing, and mitigating systemic risk in the Nigerian capital market.
The Act expands the categories of issuers, as a key step towards the introduction of a wide range of innovative products and offerings as well as the facilitation of “commercial and investment business activities”, subject to the approval of the Commission and other controls stipulated in the Act.”
The SEC head disclosed that the Act contains a new Part which provides for the regulation of Commodities Exchanges and Warehouse Receipts. These provisions are essential to enable the development of the entire commodities ecosystem.
On the Issuance of Securities by Sub-Nationals and their Agencies, salient provisions of the Act addressed existing restrictions in respect of raising of funds from the capital market by Sub-Nationals to allow for greater flexibility in this regard.
He said that The Act introduces the mandatory use of Legal Entity Identifiers (LEIs) by participants in capital market transactions. This stipulation is designed to improve transparency in the conduct of securities transactions. It prohibits Ponzi Schemes and other unlawful investment schemes, while prescribing stringent jail terms and other sanctions for the promoters of such schemes.
In a bid to strengthen the Investments and Securities Tribunal, the Act amends some key provisions in the repealed ISA 2007 pertaining to the Composition of the Tribunal, constitution of the Tribunal, qualification and appointment of the Chief Registrar as well as the jurisdiction of the Tribunal to enhance the ability of the Tribunal to discharge its mandate optimally.
Mr Agama lauded the President’s assent as a transformative step for the capital market, saying that the ISA 2025 reflects a commitment to building a dynamic, inclusive, and resilient capital market.
“By addressing regulatory gaps and introducing forward-looking provisions, the new Act empowers the SEC to foster innovation, protect investors more efficiently and reposition Nigeria as a competitive destination for local and foreign investments. We commend all stakeholders within and outside the capital market community for their unwavering solidarity towards the achievement of this historic milestone and solicit their continued collaboration in respect of the effective implementation of the ISA 2025 for the benefit of our economy.”
“The SEC extends its profound appreciation to the National Assembly for its patriotism and dedication in enacting this new legal framework for the Nigerian capital market. The meticulous deliberations, extensive stakeholder engagements, and bi-partisan support demonstrated throughout the legislative process highlight the National Assembly’s resolve to foster economic growth and enhance investor confidence.
“We also commend the Honourable Minister of Finance and Coordinating Minister of the Economy of Nigeria as well as the Minister of State for Finance for their invaluable contributions to the realisation of this groundbreaking project. Their strategic guidance, policy expertise, and steadfast support have ensured that the ISA 2025 aligns with Nigeria’s broader economic objectives.”
On his part, Mr Oluropo Dada, the 13th President and Chairman of Council of the Chartered Institute of Stockbrokers (CIS) lauded the move.
“This Act is a testament to our collective commitment to advancing the capital market and securing its future as a catalyst for economic growth and prosperity,” adding that it made sure that the voices of market operators, investors, and financial experts were well represented.
“The enactment of the Investment and Securities Act 2024 underscores the government’s commitment to fostering transparency, efficiency, and stability in the country’s financial markets.” .
“As capital market professionals, we are confident that this Act will deepen market integrity, boost investor confidence, and expand the range of investment opportunities available to Nigerians and global investors alike.
“As we enter this new era of capital market transformation, I urge all stakeholders—regulators, market operators, investors, and policymakers—to continue working collaboratively to ensure the seamless implementation of the Act’s provisions.
“The Chartered Institute of Stockbrokers remains committed to providing the necessary professional expertise, advocacy, and capacity-building initiatives required to maximise the benefits of this law for all market participants,” he noted.
By Dipo Olowookere
The Nigerian Exchange (NGX) Limited witnessed a significant increase in transactions last week, with investors trading 7.521 billion equities valued at N398.949 billion compared with the 2.902 billion equities worth N48.064 billion bought and sold in 57,044 deals a week earlier.
Lafarge Africa, Sovereign Trust Insurance, and Cutix were the busiest stocks in the week, accounting for 5.546 billion units worth N332.381 billion in 1,300 deals, contributing 73.73 per cent and 83.31 per cent to the total trading volume and value, respectively.
Unlike the previous week, the industrial goods sector led the activity chart with 4.923 billion shares valued at N331.999 billion in 2,969 deals, contributing 65.46 per cent and 83.22 per cent to the total trading volume and value, respectively.
The financial services industry slipped to second with a turnover of 2.092 billion shares valued at N31.744 billion in 32,421deals, and third place was the services counter with 198.775 million shares sold for N788,669 million in 3,450 deals.
Business Post reports that 43 stocks appreciated in the week versus 32 stocks in the previous week, 36 equities depreciated versus 48 equities a week earlier, and 71 shares closed flat versus 70 shares in the preceding week.
Mutual Benefits gained 56.72 per cent to close at N1.05, Sunu Assurances expanded by 33.27 per cent to N6.65, Abbey Mortgage Bank grew by 31.39 per cent to N4.73, Royal Exchange surged by 31.25 per cent to N1.05, and eTranzact jumped by 19.79 per cent to N5.75.
Conversely, Africa Prudential lost 60.45 per cent to quote at N13.05, CWG shed 11.11 per cent to settle at N8.00, John Holt slipped by 10.00 per cent to N7.74, UH REIT declined by 9.93 per cent to N51.25, and United Capital depreciated by 9.84 per cent to N16.50.
Bargain-hunting lifted the mood of the bourse in the five-day trading week, with the All-Share Index (ASI) and the market capitalisation closing higher by 0.66 per cent to 105,660.64 points and N66.257 trillion, respectively.
Similarly, all other indices finished higher apart from the energy and commodity indices, which retreated by 1.65 per cent and 0.76 per cent respectively, while the AseM index closed flat.
By Dipo Olowookere
A new report by Atmos has revealed that Nigeria is not among the 10 most cryptocurrency-obsessed countries in the world despite a growing interest in digital assets among citizens.
In the report made available to Business Post, it was disclosed that the United Arab Emirates (UAE) is the most crypto-obsessed country in 2025, with over a quarter of its population owning at least a digital coin.
It was discovered that the country has exceptional adoption growth at 210 per cent and moderate searches despite having minimal Bitcoin ATM infrastructure.
Following is Singapore with a score of 97.5, with nearly a quarter of its population having cryptocurrency, and has seen a 150 per cent increase in adoption. With 160,000 monthly crypto searches, Singapore maintains its reputation as one of the most engaged markets in the space despite lacking any Bitcoin ATMs.
The United States was third with an ownership rate of 15.5 per cent, though leading in Bitcoin ATMs, housing nearly 30,000 nationwide. It also records the highest number of crypto searches, surpassing 4.2 million monthly, indicating a continued mainstream interest in digital assets.
The fourth place was Canada though it has an adoption growth rate at 225 per cent, with 10.1 per cent of its population now holding cryptocurrency. It hosts the second-largest Bitcoin ATM network globally with 3,561 machines, dramatically fewer than the US but thousands more than any previous country.
Turkey secured the fifth spot with crypto ownership of 19.3 per cent, and a monthly search rate of 802,000. While adoption growth of 135 per cent is slightly lower than other top-ranked countries, Turkey’s increasing reliance on digital assets amid economic uncertainty highlights its strong position in the crypto market.
The sixth was Germany and adoption growth rate at 225 per cent, with over one million crypto-related searches per month, Switzerland ranked seventh, Australia occupied eighth place, Argentina ranked ninth and South Korea occupied the 10th place.
“Cryptocurrency adoption is not just about investment trends. It is reshaping financial systems worldwide. In some regions, it is a hedge against inflation and currency instability, while in others, it is a step toward a more digitized economy.
“What truly drives adoption is not just interest but accessibility. When regulatory clarity, payment integration, and real-world utility align, crypto moves from speculation to a fundamental part of everyday transactions.
“As global financial landscapes shift, the countries embracing this evolution will be the ones setting the standard for the future of digital finance,” the chief executive of Atmos, Mr Nick Cooke, said.
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