Emerging Trends in Nigeria's Venture Capital Space

Venture capital is increasingly becoming a key consequential source of funding for new businesses in Nigeria and the rest of Africa. It is a type of funding for startups wherein resources are pooled from investors into new and growing businesses which have shown high growth potential. In Nigeria, Venture capital is concentrated in Fintech, Edtech, transport and logistics, Information technology and generally innovative and disruptive models. In this article, we analyze some emerging trends in the venture capital sector in Nigeria, and what to look out for in the coming year.

Rising Foreign Direct Investment in Nigerian Venture Capital Deals

Over the years, foreign investors have spearheaded the biggest investment transactions in the Nigerian startup space. Notwithstanding the Covid 19 impact and the attendant inflation effect in the country, the past ten months have seen almost $1billion being invested in startups by investment firms from around the world supported by a few local ones. In March, Tiger Global and Avenir Growth Capital, two US-based investment firms led a $170million Series C funding round into Flutterwave. The funding propelled the e-payment platform into an over $1billion valuation, making it the third unicorn in Nigeria. In August, OPay secured $400million in a funding round led by the Japanese SoftBank Vision Fund and supported by Chinese VCs. Also in August, existing investors, Target Global and Valar Ventures led a Series B round, raising $33million for Kuda Bank.

Patterns show that the foreign investors, mostly from the UK, US, Japan and China are targeting payment platforms, legal tech, agritech, mobility and other innovative businesses. It is observed that whilst local firms are supporting some of these deals, they are still a long way from their foreign counterparts in leading the biggest deals in the country.

Founders Funding Founders

The brother's keeper phenomenon is taking the form of angel investing and what has been tagged 'syndicate funding'. For instance, the founding partners of Wennovation Hub created an angel investment fund-- Lofty Inc Afropreneurs Fund 1-- which has poured about $50000 into promising African startups. Out of the several investments made through this fund have come Andela and Flutterwave, both fintech startups valued at over$1billion together.

The growing culture is a sign that founders who have themselves made it are putting faith in other founders and making efforts to help these new businesses stand on their feet. Syndicate funding complements traditional venture capital funds by pushing startups with potentials to where they need to be to gain traction for successful standard funding rounds. The assisted founders also gain more visibility and confidence as the success of the founders funded points to the potential for high yield when the time for traditional funding comes. Under this, angel investment operates much like a big brother helping the upcoming gain traction by investing and rendering other resources and services.

Creative Venture Capital

Creative Capital has been around for quite some time in the form of Google Adsense for YouTubers, and other forms of brandings and sponsorships for content creators. But the creator economy has never had it better with creative venture capital progressively proving itself as a worthy supplement to high risk and below-average returns VCs. Indeed, the focus is moving from mere advertisement pay based on audience scale and impressions to VCs investing in creativity itself. Creative venture capitals are looking to hit a big break on influencers' equity in exchange for contributing resources to the design, development and launching of brands and content.

A good instance is Marina Mogilko, entrepreneur and owner of three YouTube channels who sealed a deal with Slow Ventures in funding worth $1.7milliom. In return, the venture capital will receive 5% of her future earnings for the next 30 years. Similarly, a new VC firm, Next 10 Ventures has raised $50million to invest in startup digital content creators. The VC is structured after a traditional seed-stage funding but may also major in funding products and services.

Big Business Explosion Around the World

In September, Andela joined Flutterwave, OPay, and Interswitch in the unicorn clique of Nigeria. Although the clique is only a minute portion of the over 800 unicorns in the world, the high valuations are courtesy of steadily increasing VC deals, especially over the past two years.

So named for their rarity, unicorns--privately-held companies valued at over $1billion-- are becoming not so scarce in the global economy. Existing unicorns are also morphing into decacorns and hectacorns--privately-held companies valued at $10billion and $100 billion respectively. The likes of ByteDance, owner of TikTok, SpaceX and Chime are on this spectrum. Interestingly, the figures are showing no sign of slowing down. High consumer demand in tech and e-products and services, as a result of theCOVID-19 pandemic, is directly impacting investments in startups that provide such technologies and e-products. In all, more unicorns are expected to spring up in the coming year with Africa copping over $10billion in VC investments.

We are hoping to see these trends become lasting pace setters and business drivers for Nigerian startups in the coming year!