• Thu. Feb 2nd, 2023

Investors are Ready to Pump more Money into Nigerian Tech Startups, but…

ByJustice Godfrey Okamgba

Jun 27, 2022
Read Time:3 Minute, 56 Second

One of the most attractive investment destinations for venture capitalists especially in Africa is the Nigerian market for several reasons, however, there are a few gray areas that must be properly addressed to make these investors sign more cheques.

So far, the first quarter of the year for tech startups in Africa has been juicy in terms of funds attracted. Data from the Big Deal compiled by Max Cuvellier, revealed that a total of $2.25 billion was raised in funding activities by tech startups in Africa in the first four months of 2022. 

A breakdown of the data shows that the biggest funding came in the month of March when the startups attracted about $710 million. Then, in February, they attracted $630 million. In January Flutterwave, the most valuable tech startup ($3 billion valuation) in Africa raised $480 million. 

Interestingly, Nigeria gets the most attention for being the most populous country in Africa, with 200 million people. Prospective investors see this huge number as an opportunity. But in some cases, this number doesn’t necessarily determine the opportunity size for every startup.

Regardless, venture capitalists are still looking to tap into Africa’s huge population of young people. New talents emerging in technology, and more startups with big dreams are emerging present those opportunities.

The space has bottlenecks that hamper growth. Investors still see Africa as a virgin area for investments, regardless of the funds it has continued to attract. 

For example, Nigeria’s popular active angel investor Olumide Soyombo began angel investing in 2014 and has invested in at least 33 startups, including Stripe-owned Paystack, PiggyVest, and TeamApt.

Startups across different sectors such as health (health-tech) education (edutech), finance (fintech), agriculture (Agritech), etc., are all getting a large chunk of investments from VCs. However, in the last few years, the Fintech space has been dominating in terms of the number of funds, it has attracted. 

In 2021, an industry report, says African startups attracted $5.2 billion in venture capital with Nigeria accounting for the largest share of investments.

It is not out of place now to say Nigeria is a hotbed of innovative fintech firms surpassing South Africa, the continent’s most developed economy.

Fixing Nigeria’s Mess

Lots of the critical stakeholders at various fora always suggest that the Nigerian government come up with the right policies that will attract foreign investments and spur the growth of businesses. 

The basics is the government addressing insecurity challenges and enhancing road construction and rehabilitation, as this will benefit investors who are invested in Agritech. This space requires that there are good roads that link the cities with the rural areas. 

Improving electricity to ensure businesses optimize their potential and avoid over-regulation that could affect businesses. 

According to Iyin Aboyeji, General Partner at Future Africa, a venture fund, said the tech community’s engagement with so regulators in the space is unstructured. “There is a need to stamp out a bad policy before it takes root.”

One of the erroneous moves by the Nigerian government which sent a wrong signal to venture capitalists was when it decided to place a ban on Twitter.   

Twitter has been a medium for most angel investors to communicate and engage in conversations that radiate the market opportunity in Nigeria.

The ban, however, at a time could have negatively affected sentiments and perception of foreign investors about Nigeria negatively. Another major challenge that must be addressed is the excess taxes and levies imposed on small businesses. Investors take notes of these details and make decisions on whether to invest in a particular market or not. 

“We have suffered a few things like being restricted from conducting international money transfers until we obtain a local license. We have also been threatened with new levies,” an edutech startup that doesn’t want to be identified told TechEconomy on a phone call.

The restriction placed on banks to carry out cryptocurrency transactions by the Central Bank of Nigeria (CBN) is also another pointer to over-regulation. This situation raises concern for venture capitalists who are observing the Nigerian market.

CBN, while announcing the ban, said cryptocurrencies were widely used as speculative assets rather than as means of payment, making them significantly volatile and variable in their prices.

According to Luno, a crypto trading platform, Other companies have chosen to find workarounds that are less visible to regulators – for example, Peer-2-Peer (P2P) trading. Our view is that P2P trading would go against the spirit of the CBN’s directive.”

There have been calls at various fora for the CBN to get more involved, understand how the system works and provide robust regulations to address its valid concerns.


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