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Local funding slows as tech startups raise $95m offshore


PHOTO: VenturesAfrica

•Indigenous investors anxious to recoup investments
• ABAN solicits matching fund

Nigeria’s sluggish economic landscape is fast founding expression in the information and communications technology (ICT) sector, as there appears to be a pause in local funding and investments into indigenous startup companies.

The Guardian gathered that the last time a tech startup got local funding in the country was about three years ago.

On the contrary, opportunities explored by some of these startups offshore, appear more promising, and has paved the way for fresh injection of funds into their businesses.

Specifically, checks by The Guardian showed that in 2018, Nigerian tech startups raised about $95 million, the highest in Africa with about 58 firms benefitting.

Recent African Tech Startups Funding Report released by Disrupt Africa, showed that the number of African tech startups that raised funding increased by 32 per cent to 210, and the total amount raised jumped by a whopping 71.5 per cent to the record yearly figure of $334.5 million.


The total amount of money raised by African startups yearly has grown by more than 50 per cent since Disrupt Africa started tracking investments in 2015. And investor faith in the sector is further demonstrated by the fact companies are raising larger amounts of funding, with the average amount secured in 2018 a record $1.6 million.

By these funding, Nigeria has displaced South Africa as the leading tech startup funding destination. While 58 Nigerian firms raised $95 million last year, only 40 South African startups were able to $60 million.

Disrupt Africa noted that for Nigeria, this represented a significant year-on-year boost because in 2017, just 30 Nigerian companies raised $63.3 million among them, $40 million of which was accounted for by Andela. The number of Nigerian startups securing investment increased by more than 90 per cent in 2018, and total funding jumped 50 per cent. 13 of those startups bagged $1 million or more, up from just six in 2017.

Nigeria’s place at the top of the pile was driven by investments in fintech companies. 2018 saw major rounds for the likes of Mines, which has developed a credit platform and payments startups Paga and Paystack, but these were just three of the 22 Nigerian fintech companies to secure investment last year. Indeed, these fintech firms secured more than $60 million between them, making up two-thirds of the country’s overall total.

The size of the market, and the services that innovative tech startups are managing to provide to people within it, are key.

“In recent years, the Nigerian fintech space has introduced a number of innovative solutions that have drawn a lot of attention to it. Cowrywise and Piggybank have made digital savings mainstream. Aella Credit, Branch, Paylater and RenMoney are providing lending facilities to people who historically couldn’t get an institutional loan,” said Shola Akinlade, CEO of Paystack, which raised $8 million.

Managing Director, Mines, Adia Sowho, who raised a $13 million last year, one of the largest in the fintech space across Africa, said its clear why investors are backing fintechs. “Africa presents a massive opportunity for certain financial services given its population and infrastructure gaps. There is plenty of opportunity for fintech solutions to meet consumers’ needs,” she said.

Commenting on the pause in local funding for tech startups, the Chief Executive Officer, , observed that local investors are still not there, stressing that there is a dearth of committed local investors.

Ekezie observed that for entrepreneurs to attract funding, they must be dogged and be able to solve peoples’ problems with new solutions.

In a chat with The Guardian, the CEO of CcHub, Bosun Tijani, said although, there is so much money in Nigeria, “but we need to understand that the local investors are still not used to investing in technology because there are other places they can put their money, and it generates guaranteed returns quickly.

So, I think that’s why, but the more we get successful technology startups that are producing returns for stakeholders, the more local investors will start to see that maybe they should put their money in it.”

Tijani said there is urgent need to solve challenges that can limit investors in Nigerian businesses.

Software Developer/Head, Developers Programme at Facebook, Chukwuemeka Afigbo, said the situation is getting better.

“I would say it has gotten better over the last five years. In the past, even seed funding didn’t come from Nigeria! People who needed like $20,000 just to start up couldn’t get that in Nigeria. But now, we have the Lagos Angel Network; we have Africa Business Angel Network that is at least able to source seed funding for people. The next level is when you start talking of millions of dollars. Yes, that hasn’t started happening locally, but we will get there.”

To the Co-founder, Lagos Angel Network and President of the African Business Angel Network (ABAN), Tomi Davies, to say local investors are not investing in tech startups in Nigeria is a disservice to the indigenous players.
According to Davies, government can do a lot to revamp the sub-sector and make it thrive better, and the first thing it can do is to create a Matching Fund that can accelerate development.


He explained: “The first thing is creating Matching Funds. Here, let’s say the Federal Ministry of Education has a budget of N100 million; some millions from it can be taken out and put aside for innovations. By so doing, anybody that is creating a company that aligns with the ministry’s budget, the angel investors can support by putting money and it will be matched with the funds on ground for creativity. It is an innovative way. Other countries do tax incentives. It’s also a way to get people not to stop investing. I’m not talking of public private partnership, in the classical sense, but I’m saying, set aside the money you’re supposed to spend, and then match it to do what is it you want to do before.”

Davies further noted that the activities of Angel investors have increased year-on-year by at least a 100 per cent for the last four year,s but “because it started from a very small base like those of us that started in Lagos. Today, there are 65 of us. You’ve got the venture platform angel, the south south angel, Abuja angel. All of them are less than three years old, though, it is still very small but growing. As people start to learn how to invest in Intellectual Property, things will change faster.

“The challenge we have as a country before now was not that we don’t have investors, but we were used to property and stock exchange investment. This one that one person will sit with computer and make money, people really don’t understand the nitty-gritty. But that is slowly changing because these entrepreneurs themselves are becoming investors.

“I will give you a classic example, Tayo Oviosu is an angel investor. Jason Njoku is an angel investor. All of these are entrepreneurs, who have made their way here through the ecosystem. Yes, the level of the angel investing is not as high as the foreign investment coming in but don’t forget we also devalued Naira recently. But invariably, there is an increase in the activities of local investors in the tech space.”

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