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Startup Funding Nigeria: Why Foreign Funds Dominate

This is a question, from a subscriber, on my book chapter dealing on funding and the companies which are funding startups in Nigeria and Africa. The conversation could benefit the community and I am moving some parts to the public.

Prof., Of the 19 startups that received funding in the chat above, Nigeria took nine slots. However, the list of investors is dominated by foreign rather than local players. Is it a case of lack of local financial muscle on the part of Nigerian investors or a lack of conviction on the potentials of these startups? Or both?

My Response to the Question

I do think it is largely that those with money in Nigeria could find other ways to deploy that money, because they have many alternatives. Funding startups in Nigeria is new to the rich people in our society. Why would you put money and wait for 6 years for any hope of return when you can give same money to a trader and within 3 months, after importing containers, can pay you with nice interest? That is how they think – they fund trade services. Also, if you have money in Nigeria, some banks provide good fixed interests products that could be appealing.

The fact is this: we do not have big-league local investors. It is not because we do not have great startups. We do. The problem is lack of local funds. And the founders know this reality: they look outside for the capital. That is why the data you see looks the way it is.

Most rich Nigerians are former military officers and politicians: they did not make money through building companies. Technically, they will not understand the whole thing about investing money and then wait for years for returns. Possibly, I believe, if the present crop of entrepreneurs mature and make money, then we can have a local pool of investors. That is why we need real exits.

When an iroko falls, the small trees get fresh air, …and sun. But the “fall” here will be exit that will make local employees rich. Then, they can seed other companies. I am not aware of any fund in Nigeria that can invest $1m in one early stage startup that is not backed by a foreign fund or investor.

We will be updating that table in January. Yet, it is still foreign-dominated: the funding trajectory has not changed. The essence of having this book online is to make it organic and living, as we continue to update contents as data emerges.

You pretty much covered the reasons. How they made the money and the limited knowledge the rich guys have about investment are key factors. They would rather keep buying lands and building houses, that's how things are at the moment. Again, looted funds seem to be suffering from 'anxiety'all the time, that could be the reason they prefer to stash them somewhere, lying fallow anyway.