What’s next for Nigerian startups now that they are getting listed on the capital market?

Ganiu Oloruntade
Nigerian startups
Image Source: Frédéric Soltan/Corbis/Getty Images

Every year, the Nigerian tech ecosystem rakes impressive funding from venture capitalists, a pointer to its undeniable success story. Nigerian startups raised over $1.2 billion in 2022, according to data from Africa: The Big Deal, a funding tracker.

Considered Africa’s tech leader, Nigeria has always attracted the most venture funding on the continent due to the country’s large population and growth potential. According to a report by Partech Africa, Nigeria represented 23% of African tech’s total equity funding last year.

However, a large chunk of the funding for startups in Nigeria and Africa comes from foreign investors who dominate the ecosystem, with little presence of local VCs. Often, when news breaks that another Nigerian startup has raised funds, the funding round is usually led by foreign investors.

For instance, last February, the Nigerian unicorn Flutterwave raised a $250 million Series D round, backed by the world’s most prestigious investors, including Altak Park Capital, Whake Rock Capital, and Lux Capital. The fintech giant will most likely float an initial public offering (IPO) on the US-based NASDAQ this year, perhaps following in the footsteps of Africa’s e-commerce giant Jumia which got listed on the New York Stock Exchange (NYSE) in 2019.

Read also: How Nigerian startups attracted $1.2bn in funding in 2022.

Enter NGX Tech Board

Experts have stressed the need for more inflow of local capital in the Nigerian tech ecosystem. As this venture capitalist puts it: “If the ecosystem is funded wholly by foreign capital, local investors will miss a great opportunity to sit on the table of the future economy”.

Last December, the Securities and Exchange Commission (SEC) approved the rules for listing Nigerian startups of the newly created Technology Board of the Nigeria Exchange Limited (NGX), in what was touted as a game changer for the Nigerian tech ecosystem.

The NASDAQ-style Board “would support the listing of startups on the Exchange as they endeavour to satisfy their financing needs, both those created in Nigeria and those from other African nations,” Temi Popoola, CEO of NGX, said in a statement.

Image Source: TechCabal.

SEC equally approved the ‘Rules for Listing on NGX Technology Board’ covering two segments: Start-Up Tech and Big Tech, with different requirements based on market capitalization (Between ₦420 million and ₦42 billion for Start-Up, while the figure for the Big Tech segment is over ₦42 billion).

In a recent interview with Technext, Victor Famubode, the Project Manager of the Nigeria Startup Act, described the NGX Tech Board as a “confidence booster” for Nigerian startups.

“That means that the government has created a special oversight for tech startups at the level of the SEC. It equally means that local investors can have confidence in our capital market. When we look at startups incorporated in places like Delaware, it’s because investors are sure that they have government backing in case issues arise,” he said.

Read also: Startups will now be listed on the Nigerian Exchange. Here is why it matters.

Could this mean a major turnaround for Nigerian startups?

The million-dollar question, however, is what the NGX Tech Board means for the Nigerian tech ecosystem. In truth, listing Nigerian startups on the local stock market offers a home-grown path to the public market without leaving the country’s shores.

“What NGX has done is to find a comfortable balance for capital raise and regulation — two of the four pillars identified by venture capitalists. Also, the Tech Board is a shared vision between the NGX and the tech industry,” Funsho Idowu, MD/CEO of Sofri (powered by Links Microfinance bank), member of DLM Capital Group, a Lagos-based developmental investment bank, told Technext.

Easy access to new markets and specific funding opportunities is the primary reason Nigerian startups have had their eyes on foreign bourses. For one, NASDAQ is preferred by tech companies for its lower listing fees and minimum requirements. Though costlier than NASDAQ, the NYSE has larger volatility, more visibility, and greater certainty of execution.

Nigerian startups
Nasdaq. Image Source: Reuters.

Though he admitted that the NGX Tech Board could not particularly discourage Nigerian startups from getting listed on foreign bourses, Idowu believes that this move will help the ecosystem to localize investment using a formalized exchange like the NGX: “If you raise locally, it gives a further advantage to be able to raise globally”.

Nwabu Okonkwo, Senior Legal Counsel at DLM Capital Group, agrees that the Board has great offerings for the ecosystem, albeit dependent on the ability of the startups to meet the requirements for listing, such as being a public company limited by shares, core investor, or strong technical partner, number of shareholders, and an operating track record of at least twelve (12) months before the date of application.

However, Okonkwo said that this development further signifies a win for Nigerian startups as they won’t go through the hassles of listing on foreign bourses and can utilize local opportunities for global growth.

“This is a good way to start. If the startups are able to meet the listing requirements, the visibility that the NGX will afford them will actually help them raise more money for their various ventures,” he said.

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