A recent report has revealed that investments into tech start-ups in Africa have remained lower, attracting only 5 percent of the world’s venture capital deals since 2012. This is despite visits by Silicon Valley heavyweights to countries like Nigeria, Kenya, South Africa.
CB Insights, a New-York based research outfit, recently released its ‘Rise of the Global Rest: Identifying new Startup and Venture Capital Frontiers Globally’ report which highlights the destination of start-up funding around the globe.
According to the firm, there has been a rise in the funding activity around private tech companies around the world by venture capital (VC) investors. Also on the increase, starting from 2012, are startup investments in frontier markets like Lagos, Nigeria.
Irrespective of the increase, Nigeria and other countries in the frontier markets segment are only able to attract .5 percent and 3 percent of global VC deals. The disclosed VC funding in startup frontier markets from 2012 to 2017 was $32 billion across 5,749 deals. On the same vein, disclosed VC funding in Lagos from 2013 to 2017 was at $41 million across deals.
Venture capital deals to companies in Lagos reached the highest in 2016.
Collins Onuegbu, Director at Lagos Angels Network, an association that rallies local investors fund towards tech start-ups, told BusinessDay that the amount of money invested by Nigerians in the start-ups, are rarely captured in any data. Funds from foreigners are the most published at the expense of the local deals.
Onuegbu however admitted that the level of local investments into tech start-ups is abysmally low and therefore, contributes to the challenge of attracting foreign investments.
Current capital investments coming into Africa, he said, are small compared to what start-ups in UK are getting because Africa is not a major priority, given the operating environment.
He noted that companies will invest based on the potential size of the market. “The kind of funding you will get will depend on the potential size of the business.
“The worry is that what comes here is almost like CSR funding, instead of real funding. They invest 75% of their money abroad and maybe 25 percent in frontier markets like Africa. So what we are getting is frontier investment,” Onuegbu said.
He suggested that capital investments should be driven by local investors.
“The size of local investors in Nigeria is quite small. The solution should be that as the market grows, we only hope we can equally grow local investors,” he said.
Helen Anatogu, chief executive officer of Idea Hub noted that the capacity of the start-ups could be a major factor to the level of funding they attract.
“If you look from the perspective of the start-ups, there is the maturity of the founders, the quality and complexity of the technology. One of the good things about globalisation is that everybody has access but what it also means, is that everybody is competing,” she said.
Anatogu believes that tech start-ups may need to review their strategy and see their business as competition.
“We are getting better at building products but it is not just about the products are not enough. Everything has to be right. You have to be able to market and sell it. We don’t even realise we are competing with other people in other countries. A number of start-ups have had a bit of rough time with foreign investors because of the issue of foreign exchange risk that makes investors not have appetite for it.
“The market is unstable, securities are not assured. Investors invest in what they understand; they want to invest in businesses that can expand beyond the frontiers. They want it to go beyond the local region,” Anatogu said.
Benjamin Benaim, co-founder of Seedstars, said the political and monetary stability of the country is another issue affecting tech start ups.
“From the many peer investors we talk to regularly, the appetite for Nigerian entrepreneurs and the massive domestic market is undeniable. It’s mouth-watering to see those opportunities, but there is unfortunately a poor perception of the country. Things are getting better though, thanks to bright moves on the forex side introduced since April this year, including the NAFEX and the futures contracts throught FMDQ,” Benaim said.
Over half of all global VC deals went to companies located in the United States. The UK, China, India, Germany, and Canada took the highest shares of the VC deals respectively.
Some Nigerian start-ups such as Flutterwave; an online payment firm; MailHaven, an electronic delivery firm; agric startup, Mobile Farms; online health startup, Fyodor Biotechnologies, agric tech startup, Releaf Group have announced closing various seed funding at various times.
FRANK ELEANYA & CALEB OJEWALE
