An appraisal of how the Nigeria technology ecosystem has been raising capital challenges faced and the Nigeria Exchange (NGX) initiatives to ease access to capital.
In recent years, the Nigerian tech ecosystem has experienced tremendous growth. Start-ups have shown great potential and have received investments from angel investors and venture capitalists. According to a report by Nairametrics, a Lagos based financial information and content company, Nigerian tech companies received about 60% of the money African tech start-ups raised in 2021. Start-ups in the Nigerian tech ecosystem in 2021 across 91 deals raised $1.65 billion via series and seed funding. The fund raised in 2021 was higher than what was raised in 2020. This shows the great potential that the Nigerian tech ecosystem possesses and the impressive work and deal-making in the sector. There was a 152% increase in the amount raised compared to the $517 million raised in 2020.
Nairametrics further reported that in 2021, the tech start-ups that raised considerable capital are Opay (raising $400 million in August 2021, taking the company’s valuation to $2 billion), Chipper Cash (raising $150 million in May 2021 and $100 million in November 2021, taking its valuation to $2 billion), Andela (raising $200 million in September 2021, taking its valuation to $1.5 billion) and Flutterwave (raising $170 million in March 2021, taking its valuation to $1 billion). Others are FairMoney – $42 million and Ventures Platform – $40. Million
Despite how well some of the unicorns and other tech start-ups are faring, there is still room for improvement in raising capital. New and small start-ups find it difficult to access capital. Some of the many ways start-ups try to raise capital are crowdfunding, Incubators and Accelerators, Business loans, Angel Investors, Bootstrapping and Venture Capital funding.
Challenges impeding tech companies’ listing on the stock exchange
While venture capital and private equity might be the most significant investment sources for the Nigerian tech ecosystem, access to capital is still a big problem for many tech companies. An excellent option for many tech companies is listing on the stock exchange. While a few tech companies like Airtel Africa and MTN Nigeria are listed on the stock exchange, many tech companies are looking to raise capital through the stock exchange.
According to Business Day, a Lagos based business newspaper, some of the current challenges that are stopping more tech companies from listing on the stock exchange include:
- Compliance: the Nigerian tech ecosystem is not entirely familiar with “transparency”. However, the stock market does not see this as very healthy. The stock exchange is an intensely regulated environment that has strict compliance expectations. For tech companies to enter the stock market, they need to become more compliant with financial regulations and policies.
- Maturity to remain listed: getting listed on the stock exchange is not as challenging as remaining listed on the stock exchange. Therefore, the maturity and discipline of the company are significant. Companies can be delisted from the stock exchange for failure to meet the required post-quotation standard, non-performance and poor corporate governance. Therefore, companies must have any potential issues sorted out and their house in order before getting listed on the stock exchange.
NGX launch of a “Technology Board” and the proposed US type NASDAQ index
According to Tech Cabal, a Nigerian digital media content company, in a bid to improve the stock market after a downturn in the number of new listings, the Nigerian Exchange group (NGX) is trying to woo tech companies. This move by NGX to attract tech companies is a clear indication of the undeniable growth of Nigeria’s tech ecosystem. The tech ecosystem is now a significant destination for foreign direct investment.
NGX is setting up a technology board styled after NASDAQ to help consolidate the increasing tech companies’ internet economy. The plan of the board is to bring about changes that will ensure that tech companies find the listing on the stock exchange very attractive. One of the significant changes contemplated would be removing “breaking even”, which is a current prerequisite for companies to be listed. NGX strongly believes that “breaking even” as a requirement for listing is putting off tech companies.
According to Premium Times, a Nigerian newspaper, in 2021, NGX was demutualised, becoming private to attract increased flows of domestic and foreign investment into the Nigerian stock exchange market. There was also a shift in emphasis to highlight expansion into other sectors, markets, and corporate governance. The NGX comprises three subsidiaries and a holding company, covering the Nigerian Stock Exchange’s regulation and operation and real estate. The structure of the NGX is quite like the structure embraced by other international market groups like the Johannesburg, London and New York stock exchange groups.
According to Tech Cabal, even though Nigeria’s market is the fourth largest in all of Africa, none of the top home-grown start-ups is listed on the Nigerian Stock Exchange. When Africa has seven tech start-ups, most of which are domiciled in Nigeria, with over $1 billion in market valuation, this indicates the level of growth experienced by the tech ecosystem in Nigeria.
It is believed that the government of Nigeria plans to implement the Nigerian Start-up Bill (NSB). This bill looks to have a new regulatory framework created to allow innovation-driven businesses to thrive. The bill will also address common shortcomings like capital access, tax holidays and insufficient digital structure.
There are numerous benefits for Nigerian tech companies listing on the stock exchange. These benefits include a fair price for the securities, control and supervision of trading in securities, and fundraising and provision of a seamless exit route for investors. Other advantages of tech companies getting listed are better corporate practice and disclosing corporate information on time. For Nigeria, having tech companies listed could go a long way in reviving the stock market.
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