Thursday, March o4, 2021 / 09:30AM / Oped by Adebola Peter Arojojoye* / HeaderImage Credit: PharmaBoardroom

Venture capital investment refers to a type ofprivate equity investment in which investors provide capital and mentorship ina startup that is still in its development phase in exchange for equity in thecompany. The rise in venture capital investments in Nigerian startupsdepicts how the investment process in companies has evolved. Before now,companies heavily relied on funds from commercial banks to run their businessactivities. Sadly, this comes with a lot of unfavourable conditions such ashigh-interest rates on loans, banks demand for collateral and the pressure oncompanies to pay up the loan. Thus, startups often opt for venture capitalfirms which often render financial, managerial, and technical assistance neededto build tech products and scale their operations.

In a report published by Techpoint Africa, Nigerian startups received 86.3% of over $1.8 billionventure funds that were contributed to "West African Millionaire Startups" within 2010 and 2019. According to the 2020 Africa Tech Venture CapitalReport,Nigeria remains the number one hub for venture capital investment in Africa asNigerian startups raised a total of $307 million in 2020. It suffices tomention that this report only covers Venture capital deals that worth over$200,000. Though some may belittle the amount of these funds and the number ofcompanies targeted by comparing it to the amount being raised by startups indeveloped nations, Nigeria has come a bit far with fund raising.

These venture capital investments in Nigerianstartups are a form of impact investment. Asides from generating financialreturns on these deals, research shows that investments from venture capitalcompanies tend to bring about a measurable social impact in the country. Moststartups in the country focus on solving trivial problems with innovation.These solutions range from education (Andela, Utiva, ulesson), funding ofagricultural production (ThriveAgric, FarmCrowdy), wealth management (Piggy Vest, Cowrywise),online payment solutions (Paystack and Flutterwave), healthcare (54gene, Lifebank, Helium Health)amongst others. More startups emerge every year all in a bid to solve aparticular problem Nigerians are embattled with. For these startups to realizetheir potentials, they will need funds to scale their operations. Thus, fundsgotten from venture capital firms contribute a great deal in helping thesecompanies innovate their product and kickstart their operation.

Venture capital firms also provide funds forstartups to invest in branding and marketing of their products. In the words ofTara Nicholle Nelson, "you cannot buy engagement, you have to buildengagement." Thus, building a product is not enough. Startups do engage inimplementing a lot of marketing strategies for user acquisition, engagement,and retention. This requires a lot of funds which most tech entrepreneurs donot have. This is more difficult to do in a market like Nigeria which is reportedto have a population of over 200 million people. Thus, making the product awell-known brand and preserving the same, costs a fortune and alsorequires establishing partnerships with stakeholders in key areas. These areissues venture capital firms can help with as they have the right resources andnetwork.

Additionally, companies that have received fundingin the past through venture capital investment are equipped with the means to expand their operations and create new marketopportunities for their product. Subsequent funding received by startups also confersa form of goodwill in terms of financial capabilities and human capital whichis often needed to expand operations and improve their technologicalinnovation.

Thus, it is nodoubt that Nigerianstartups stand a lot to benefit from the investment opportunities, mentorshipand the network, venture capital firms do offer. Sadly, most ofthese investments are foreign venture capital funds. However,the recentefforts of companies like Future Africa through the Future Africa Collectiveand Co-Creation Hub through the CcHub Syndicate programme must be commended asthese are innovative funding models through which more tech startups can bebacked. Though there is the need for more venture capital investments inNigerian tech startups as techpreneurs in Nigeria never stop to serve theirfatherland with all their talents and hard work in a bid to fix the deep-lyingissues that are affecting the various sectors of the Nigerian economy.

Would it not then be a smart decision for morehigh-net-worth individuals and enterprises within the country to invest inthese innovative ideas? Would it not then be right for the Nigerian Governmentto create more strategic policies and enable the environment to attract morefunding in the tech ecosystem? These are the multimillion-dollar questions thatdemand attention.

*Adebola Arojojoye is a 5th year law student of the University of Ibadan, withkeen interest in the intersection of Corporate Advisory and Sport.

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