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
The NASD Over-the-Counter (OTC) Securities Exchange suffered its fifth decline for this week on Friday after it closed lower by 0.09 per cent, with the Unlisted Security Index (NSI) down by 8.91 points to 3,639.10 points from 3,642.22 points and the market capitalisation declining by N1.86 billion to end N2.177 trillion compared with the previous day’s N2.179 trillion.
Yesterday, the bourse recorded three price losers led by NASD Plc, which crumbled by N4.00 to close at N55.00 per share compared with the previous day’s N59.00 per share, as FrieslandCampina Wamco Nigeria Plc depreciated by 68 Kobo to N66.23 per unit from Thursday’s closing price of N66.91 per unit, as Mass Telecom Innovation Plc lost 4 Kobo to end at 40 Kobo per share versus the preceding day’s 44 Kobo per share.
On the flip side, there were two price gainers led by Central Securities Clearing System (CSCS) Plc, which added 21 Kobo to close at N40.81 per unit compared with the previous session’s N40.60 per share and UBN Property Plc, which improved by 10 Kobo to N2.09 per share from N1.99 per share.
During the session, the level of activity increased as the the volume of transactions surged by 255.7 per cent to 10.2 million units from 2.9 million units, the value of trades soared by 122.0 per cent to N189.5 million from N85.4 million, and the number of deals increased by 22.5 per cent to 49 deals from the previous day’s 40 deals.
When the bourse ended for the day, CSCS Plc remained the most traded stock by value on a year-to-date basis with 10.5 million units worth N427.7 million, trailed by FrieslandCampina Wamco Nigeria Plc with 893,553 units traded for N60.1 million, and MRS Oil Plc with 291,801 units valued at N58.3 million.
However, CSCS Plc took over as the most active stock by volume on a year-to-date basis with 10.5 million units old for N427.7 million, as Geo-Fluids Plc slipped to second place with 7.7 million units worth N52.4 million, and Mass Telecom Innovation Plc occupied the third spot with 6.2 million units transacted for N2.5 million.
By Adedapo Adesanya
The Naira appreciated against the US Dollar by 44 Kobo or 0.03 per cent in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, January 24 to sell for N1,421.63/$1 compared with the N1,422.07/$1 it was traded on Thursday.
This was buoyed by increased FX inflows from exporters as well as sustained Dollar volume from non-bank corporate, individual and other sources.
However, the Naira lost N15.61 against the Pound Sterling in the same market window yesterday to quote at N1,924.17/£1 compared with the previous day’s value of N1,908.56/£1 and depreciated against the Euro by N3.60 to finish at N1,669.56/€1 versus the N1,665.96/€1 it was exchanged a day earlier.
At the GTBank forex counter, the Nigerian currency traded flat against its American counterpart at N1,430/$1, and also maintained stability against the greenback at the parallel market segment during the session at N1,485/$1.
Meanwhile, the cryptocurrency market took a hit as slowdown occurred, explained by large holders taking profits.
The market had seen a short lived boost after Japanese intervention sent the Yen surging against the US Dollar, a move some saw as a necessary step toward resuming a bull market in crypto.
However, investors took profit with Dogecoin (DOGE) down by 0.8 per cent to $0.1240, and Cardano (ADA) down by 0.7 per cent to $0.3585.
Further, Solana (SOL) dropped 0.6 per cent to sell at $126.89, Litecoin (LTC) depreciated by 0.5 per cent to $68.42, and Binance Coin (BNB) fell by 0.1 per cent to $890.13.
But, Ripple (XRP) appreciated by 0.4 per cent to $1.91, Ethereum (ETH) rose by 0.3 per cent to $2,953.72, and Bitcoin (BTC) grew by 0.1 per cent to $89,477.58, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
By Modupe Gbadeyanka
The House of Representatives Minority Caucus Ad-hoc Committee on Tax Laws on the Allegations of Illegal Alterations on the Gazetted Tax Laws has released an interim report on its findings, accusing the executive arm of government of removing and inserting some items in the bills passed by the parliament.
The chairman of the 7-man panel, Mr Afam Victor Ogene, in the report released on Friday, said the laws were altered after they were transmitted to the executive by the National Assembly for assent by President Bola Tinubu.
Recall that a member of the green chamber of the parliament, Mr Abdulsamad Dasuki, raised an alarm on the discrepancies in the gazetted version and the one passed by the legislative arm of government.
The Minority Caucus of the House of Reps, headed by Mr Kingsley Chinda, in a statement on December 28, 2025, vowed to “unconditionally protect the independence of the legislature and our democracy.”
It then constituted the committee on January 2, 2026, to get to the roots of all the issues surrounding the scandal.
The next day, the lower chamber of the National Assembly, through its spokesman, Mr Akintunde Rotimi, released a statement announcing that the Speaker, Mr Abbas Tajudeen, had directed the release of the four tax reform Acts; The Nigeria Tax Act, 2025; The Nigeria Tax Administration Act, 2025; The National Revenue Service (Establishment) Act, 2025; and The Joint Revenue Board (Establishment) Act, 2025, duly signed into law by the President, for public record, verification, and reference.
The statement further added that the Speaker has also ordered an internal verification and immediate public release of the Certified Acts to eliminate doubts, restore clarity, and protect the sanctity of the legislature.
In its report yesterday, the panel said it discovered some alterations in the gazetted version, noting that, “given the anomalies, illegalities, and impunity observed, which clearly undermine the National Assembly’s constitutional powers and democracy, the committee finds the current evidence sufficient to warrant a deeper investigation. This will ensure accountability for the affront against the legislature.”
“To achieve this, the committee respectfully requests an extension to conduct a more thorough examination of the matter,” it added.
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