In building the startup ecosystem in Southern Nigeria and Port Harcourt specifically, there must first be an expansion and influx of local investors in the community. Family, Angel investors, VCs, and PEs must converge… Uche Aniche
Without a doubt, Nigeria has established itself as Africa’s top startup destination. Startups in Nigeria have grasped the opportunity as the number of internet users and young people seeking digital solutions for their financial issues has increased.
With innovative ideas springing from the minds of young entrepreneurs in numerous states and digital hubs popping up in the vibrant city of Lagos, the nation has cemented its position as a major player in the global startup scene.
According to Disrupt Africa’s 2022 African Tech Startup Funding Report, 28.4% of all funded startups in Africa were Nigerian.
We are witnessing a sharp rise in technology-focused startup activity in Nigeria. Tech startups in southern Nigeria depend on a variety of financing sources, and venture capital is not a common source. Instead, they develop within an ecosystem made up of a range of actors, institutions, and relationships.
A dense, interactive, and networked ecosystem will allow startups to flourish, and it is exactly this kind of ecosystem that governments in Nigeria must build.
The governments in Rivers State, Akwa Ibom, Enugu, Anambra, and the rest of the South hope these startups will boost economic growth, create jobs, and foster sustainable development. However, what has been noticeable is the funding gap in these areas. This is due to the larger concentration of local investors, VCs, and accelerators in Lagos.
The Investor Lag
It might be said that finance is the most important factor overall because it will determine a startup’s viability. The ecosystem is made up of a wide variety of elements. Incubators and accelerators, physical and digital infrastructure, and the human capital required for technological mastery and creation are all included.
Tech startups use a range of funding sources at different stages of their development. At certain points in the development of their business, they might have easier or more relevant access to particular sources of finance.
The different financing alternatives, options, and networks make up the financing ecosystem. Venture capital (VC) and startups go hand in hand, not just in Silicon Valley but in other global centers of innovation. VC is undoubtedly crucial for entrepreneurs.
But venture capital is just one source of funding—certainly not the most popular one—among many for early-stage startups. It is frequently a sought-after source following the launch of a good or service and the need for funding for expansion.
Even though there is interest in funding startups, venture capital (VC) is sometimes out of reach for early-stage startups. It is common for venture investors to need not only an idea but also a finished product or service that is being marketed or is nearing completion. This is a category that is usually not easily accessed by southern Nigerian startups. We now focus on angel investors, a category that may be available.
Angels from the South
Angel investors provide another potential source of finance for startups. They are typically very wealthy people who have achieved success as entrepreneurs. This implies that they might be more willing to offer “patient capital” that doesn’t need to be repaid quickly, making them suitable for the lengthy product development process that startups engage in when developing their products as opposed to services.
Angel investors contribute funding in exchange for equity; therefore, they too must be repaid. Compared to other financial institutions, angel investors are less well-known since they are not physically present like banks are and frequently aren’t “publicly” recognized like government organizations or venture capital funds.
The most common ways to find angel investors are through personal and professional networks, or by participating in pitch competitions. It is challenging to get a precise picture of the number of angels and the flow of money they donate because some of them continue to operate anonymously. Angel investor associations have been established in some instances.
Nigeria has been deeply involved in the global startup revolution over the past two decades, with tech-savvy business owners and those with creative problem-solving skills creating successful new services.
However, with most tech startups located in Lagos, talent, inputs, and finance across Nigeria have migrated to Lagos. Nonetheless, development-focused startups can have a sizable customer base in the South. Agritech solutions, for instance, are mostly created for rural regions.
Financing should be moved to emerging markets in Nigeria, where development-focused startups provide innovative solutions.
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