The cheque failed.
For a moment, my heart stopped. It was 2013. This was our first foray into investing, and it was tough to accept we had just experienced a payment default with our first investment as an investment club.
How did this happen? I and a few friends came up with the bright idea that if we invested in a start-up and simply asked for post-dated cheques, our interest as investors would be taken care of. When we got the notification that our first pay-back cheque bounced, we decided to reach out to the start-up to see how we could help. It wasn’t just about earning returns for us. We saw ourselves as business partners and really wanted the business to succeed. To our chagrin, we found out, months later, that the company could not meet its obligations to us as investors. This taught me a lesson on investing in companies that can meet debt obligations. Business models are great but when a company cannot meet its debt obligations over time, it’s a problem.
As an investment club, we tried our hands at other investment options. For instance, we allocated capital to the capital market and watched the value of our stock portfolio drop significantly in a bear market. This was a wake-up call and it was also a practical lesson on risk. All investments involve a degree of risk. There is a big difference between being able to take risks and the willingness to take risks. I was willing to take risks as a beginner investor but, at the time, my bank account was not in a place where I could keep losing money.
These two key lessons on matching a company’s business model with the management’s ability to meet debt obligations and an understanding of risk have shaped my investment journey as an individual and as a curator of investment opportunities for the TGI club. Fast forward to 2022 and the investment landscape is way different from what it was in 2013. There are many more investment opportunities beyond the traditional money market, capital markets or a direct investment in a start-up.
Digital technology has enabled significant growth in the investment landscape. From crowdfunding platforms to digital banks and stock trading apps, it’s a buffet of options for today’s young investor. However, with this buffet of options has come a clear gap in the typical investor’s understanding of risk. The economic environment makes it tough to settle for average returns in the capital or money market however it also exposes investors to a lot of risks.
Crowdfunding platforms that raise funding for agriculture projects have had their day in the limelight for offering great returns with impact-based business models to investors in Nigeria, however, time has shown that for most of the investors who invest on these platforms, they lack an understanding of the underlying risk associated with the core nature of the sector itself. In TGI club, we have facilitated some of these agriculture project-based investments for the members of TGI club. With every new prospect, we invited the CEO/executive management for webinars with the club and in some cases, organized site visits to the company facilities when possible. Over time, it quickly became clear that most investors needed to diversify their portfolio from leaning too heavily on only the agriculture projects.
So, we set out to build strategic partnerships with respected asset management companies to offer expertise and research on how to invest correctly in the capital market and shared a lot of educational content on how best to diversify an investment portfolio.
‘’We have worked with the TGI club to facilitate webinars on investing in the capital market and money market to help members diversify their investment portfolios. As an asset management company, we also provide quality research and support for the members who decided to take the steps to invest. Some of the options TGIC members acted on include investing in the stock market, investing in money market securities like commercial papers, or long-term securities like local corporate bonds and Eurobonds. The TGI club has demonstrated a strong focus on educating its members with webinars, weekly research emails, and events,’’ Dunni Olawuyi , COO, Apel Asset Limited
For members like Oluchi Buraimoh, this was exactly what she needed. In her own words, ‘‘TGI Club eliminated barriers to investing by curating credible investment opportunities across asset classes for members. Personally, prior to joining the club, I had only invested in some financial assets and real estate, but thanks to TGI Club within 3 years I have been able to build a robust and flourishing asset portfolio that cuts across real estate, venture capital funds, stocks and more recently, digital assets’’.
Some of our best results in TGI club include.
- Leading the TGIC VC syndicate as lead LP on a $10m Africa-focused VC fund
- Successfully mobilizing $25m+ in impact capital for core economic sectors that provide jobs and contribute to economic growth in Nigeria
- Working with SEC-affiliated partners to curate direct investment opportunities in the money market, capital market, agriculture, consumer lending, logistics, and real estate development sectors in Nigeria and the UK.
With these achievements have come a few unexpected moments. When the ‘unexpected’ happens with an investment, it comes as a rude shock even to the most risk-aggressive investor. As a rule, our first principle as a club is to reach out to the business/company to fully evaluate the situation and how we can help ensure debt obligations are met to the investors. That’s because we see ourselves as business partners and not just investors in these companies. As expected, investors want what’s due paid back to them and since the current economic climate is rife with so many bad investment tales, it’s easy to think of the worst-case scenario and be desperate for an immediate solution. As a third party, we must walk the gentle line of communication and engagement with both stakeholders to judge the business situation of the company and ensure information is provided to the investors on the status of their investment.
A company’s ability to meet its debt obligations is tough to judge in a crisis because a crisis can throw any business off-guard with the team feeling overwhelmed and not managing communication correctly. As a business owner who has experienced business crisis situations, I know the challenge firsthand for a startup/SME. It’s a business structure issue that I have also had to learn tough lessons from and redesign my business structure with every unique experience.
In a previous situation with an investment partner, Thrive Agric. We took on the active role to work with them objectively in a crisis.
“In 2020, the pandemic happened and threw everything out of kilter. Supply-side and demand-side were obliterated overnight, and we were caught in the middle and faced with retail investors who were angry and off-takers who couldn’t pay for goods supplied due to the pandemic. We had been in business for 3 years and had never missed a payment, but this new situation was one we never expected. The vitriol, online and directly from investors, was overwhelming and from all angles. However, Tomie Balogun (Founder, TGI Club) was one investment partner who saw the bigger picture and was willing to get into meetings with us as soon as we asked and work out a plan to step in with bridge funding from the club to ensure that the investors in the TGI club get paid. Eventually, we kept our end of the plan to meet all our debt obligations and paid back all investors. This type of partnership with TGI club was a relief to us as we did not have to carry the additional burden from investors in TGI club. It also demonstrated Tomie’s deep understanding of the risk associated with investing in agriculture projects. Today, we have raised funding worth $54.6 million towards food security, we are keeping hundreds of farmers engaged and the ripple effect on the economy and the people cannot be quantified. All of which would not have been possible without supportive partners.” – Ayodeji Arikawe, Co-founder, Thrive Agric.
Unfortunately, not a lot of businesses are able to come back from a crisis with receipts to show they paid all their debt obligations and can continue to thrive as a business. That’s a fact we’ve seen in the investment environment in Nigeria. This is why communities like the TGI club make a conscious effort to work with investment partners that demonstrate a strong ability to meet debt obligations with a strong asset base or positioning in the industry from the onset. We also actively take steps to work with these partners in a crisis. For Yinka Oyetade, it was a huge relief when the TGI club stepped in to seek a resolution to the situation and messages like this keep us going.
‘’When I heard about the situation with Thrive Agric in 2020, I felt disheartened and perplexed. And I thought, alas, my worst fear has come true. It came as a pleasant surprise when TGIC promptly helped as my payments were paid in full and in due course. I was surprised as I had prepared my mind for an anticipated delay. I was happy with the way it turned out.’’
We all wish for a life without tough seasons, however. A life without tough seasons is a life without lessons. On the side of the business, there are multiple lessons most of which are not generic and should be addressed on a case-by-case basis. On the side of the investor, there are lessons on taking risks and building a diversified investment portfolio.
As an active investor in emerging markets and lead investment curator in the TGI club, I’m consciously aware there will always be a degree of risk with every investment opportunity, and we cannot step in every time when there is a delayed payout from an investment partner. For these reasons, we share educational emails on a weekly basis to empower members to make informed investment decisions. The regulators in the financial industry have also shown a strong resolve to clamp down on fraudulent investment activity which is praiseworthy and necessary to improve the overall investment landscape. However, the businesses who are in the trenches and managing the realities of running a business in a tough economy like Nigeria also need business partners who are willing to provide funding and work with them not only in good times but also in seasons of crisis.
Finally, communication in a crisis is like water is to a dry well. Here’s a word of caution to businesses raising funds to grow and expand their businesses to ensure clear communication with stakeholders in tough seasons. While it might seem overwhelming at that moment with viral comments and threats, it’s clear that making consistent communication a priority, no matter how hard it is to accept, makes a difference.
Tomie Balogun is the Founder of TGI Club. She is a certified financial educator, Harvard Fintech alumni, and financial education leader in Africa.