With the increasing number of start-up companies in Nigeria over the past five years and inadvertently, foreign direct investment, fundraising has become a familiar phenomenon in Nigeria. The inflow of funding from investors has contributed significantly to the progress and success of new and existing businesses within the Nigerian economy. However, in a period where the country is in the process of electing new leaders both at the national and state levels, market uncertainties arising from possible policy and regulatory changes impact investor confidence. Hence, investors are likely to act in a cautious manner in order to shield their investments and minimise risks. Despite the challenges and regulatory bottlenecks, Nigeria has served as an attractive destination for investors over the years due to its status as the largest economy in Africa, its large population and growth potentials.
Attracting investments is undoubtedly crucial to the growth and development of businesses and the Nigerian economy, especially for bridging the infrastructure gap. Other importance of investments include access to capital either for the setup of new business ventures or the expansion of existing ones, foreign direct investment (either through the set-up of international businesses in Nigeria or inflow of foreign currency) into the country which helps to boost the economy while developing a more globally competitive business environment and also build up the country's foreign exchange reserve; these contributions ultimately lead to the creation of jobs which helps in tackling Nigeria's growing unemployment rate.
Existing challenges such as foreign exchange fluctuations, insecurity, declining human development index etc. are other reasons for the decline in the investor confidence in Nigeria. Alternatively, investor perception and confidence can be positively impacted by a smooth, well-planned, and executed transition between the old and incoming governments.
Amidst the declining investment rate, businesses can adopt several strategies in order to showcase a resilient business model and increase chances of a successful fund raise process during a political year. In a bid to apply any of the strategies highlighted below, it is imperative to understand the risk profile of your investors and potential investors as this will inform the strategies and tactics to be adopted. Regardless, the following strategies can be adopted:
- Diversified Business Profile: Investors are more likely to withhold funds when there are uncertainties on the revenue actualization of a business especially businesses which are highly skewed towards the public sector. Diversifying the revenue streams of a business such that the cashflow of the business is not eroded or negatively impacted by any possible change or shift in the country's political landscape. This provides a level of confidence to the investors on the realization of returns on their investment.
- Good Corporate Governance Structure: The strength of a company's governance can ensure transparency, accountability, and can also prevent corporate scandals, fraud and issues pertaining to corporate liability. This can go a long way in managing investor confidence in a company.
- Consistency and Transparency in Financial Performance: Despite the ongoing challenges, companies should ensure that it is focused on meeting pre-existing conditions and financial targets for an operational company or work towards a proof of concept in order to boost investor confidence. Financial performance and projections should also be transparent to ensure that investors have a clear view and oversight of the business operations.
- Relationship with Industry Regulators and Other Government Agencies: A strong relationship with key stakeholders within the industry and other government agencies positions the company to gain quick access to relevant industry information, opportunity to contribute to policies etc.
- Communication: Communication cannot be over-emphasized in any relationship especially in a business relationship. Investors need to be kept abreast of the company and how their investments are performing. It is also important to be upfront on any challenges or setbacks the company may face.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
