Why foreign investments will keep dominating Nigeria’s startup space

by | Nov 26, 2020

At the heart of the cloudy #EndSARS protests in Nigeria, the news of Paystack’s acquisition broke like a silver lining.  US payments giant, Stripe, had acquired the five-year-old startup for a whopping $200 million (₦79 billion).

For several reasons, this was not just a win for Paystack, but for the entire ecosystem. Most importantly, it’s expected to drive more local investments and become a policy turning point for Nigeria.

Across Africa, investor confidence has steadily grown, with Nigeria, a major beneficiary, having received the highest amount of funds in the last decade.

Our recently-released West African Startup Decade report reveals that Nigerian startups accounted for 86.3% of over $1.8 billion raised by Millionaire West African Startups — startups that have raised at least $1 million cumulatively — in the last ten years (2010-2019).


At the continental level, Partech reports that Nigeria raised $747 million — 37% of Africa’s total startup funding — in 2019. This was way ahead of the top five: Kenya ($564 million), Egypt ($211 million), South Africa ($205 million), and Rwanda ($126 million).

At a fintech webinar hosted by the Nigerian Stock Exchange (NSE) on Friday, November 20, 2020, stakeholders discussed issues with local investments and the dominance of foreign investments in the Nigerian startup space.

Segun Aina, former President of the Fintech Association of Nigeria (FinTechNGR), stated that foreign companies would mostly receive the returns on these investments

“A lot of money might be coming in, but it comes come from abroad. The market is here, the money is made here, but the returns go to other countries.”

Since Techpoint Africa began publishing its Nigerian Startup Funding Report in 8, data has shown that foreign investments dominate the startup funding landscape. The same could also be said for other African countries.

In the last decade, 81.3% of investments in West Africa came from non-African countries, with the US being the chief investor.

Recall that Nigerian payments giant, Interswitch, reached a $1 billion valuation in 2019, but it was revealed led that UK-based Helios Investment Partners owns 55% of its shares.

With its acquisition, Paystack became the latest fintech company, after Interswitch and a few others, to be majority-owned by a foreign company.


While Aina believes that the NSE could come up with several initiatives to help domesticate and scale funding, a closer look shows that the problems are mostly systemic.

The fundraising experience in Nigeria

Paul Adepoju, a guest contributor on Techpoint Africa, detailed the issue with local investors and their low appetite for risks. Two weeks ago, some founders shared heartbreak stories from their dealings with local investors.

Gbite Oduneye, CEO of Eagle Global Networks, described his fundraising journey as exciting and challenging.

“When we sat down with a number of investors in Nigeria, they just did not comprehend our company that had around for 2-and-a-half-years with the CEO and co-founder very young and wearing T-Shirts and jeans approaching them to ask for $2 million at a $20 million valuation,” he said.

According to him, their disinterest in the company stemmed from a lack of knowledge and interest in the opportunities that tech provides.

Odunayo Eweniyi, COO of PiggyVest, revealed that the company’s seed round in 2018 was a mix of local and foreign investors.

“The key thing to note there is the local investors didn’t start to invest until we had funding from international investors, and I thought that was very interesting,” she said.

Baba Ogundeyi, CEO of Kuda Bank, also echoed Oduneye and Eweniyi’s sentiments.

“There’s probably almost no one I didn’t talk to about fundraising in Nigeria, I literally spoke to everybody. They’re all calling me now, after the announcement,” he said.

Ogundeyi stated that he initially wanted Kudabank to be entirely homegrown in all its aspects, including the team being assembled. But at the end of the day, it had no other choice but to look for funding outside.

“…just the reception alone, even when the answer was a no, really spurred us on…giving us the certainty that we were on the right track,” he explained.

Despite talks about the dominance of foreign funding, Techpoint Africa’s Decade Report reveals that Nigerian investors were second only to US investors in terms of size and number of deals made in the last ten years.

So where do the many heartbreak stories and data on substantial local investments align?

An even deeper problem

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Photo by Dane Deaner on Unsplash

Iyin Aboyeji, Founder and General Partner of Future Africa, and Co-founder of Flutterwave and Andela, insisted that the problem with local investments is not only unwillingness or a lack of knowledge but capital structure.

Aboyeji explained that despite the activities of local investors, the market does not provide an encouraging structure or level of regulatory certainty. And so, more should be done to reform the country’s capital structure, so it makes sense for investments to be domiciled.

“The tendency is for us to think of local investments as just a money problem. That I’m just going to throw money at you and walk away, but when it comes to technology, it’s an expertise problem.

“You really want the right kind of money involved and not just anybody and a lot of those investors are not local.”

According to Aboyeji, there is still a need to work with local investors considering that there are some things no foreign investor, no matter how technical, can do.

While entrepreneurs in the US, for example, have a variety of sources to raise funds from, including banks, pension funds and others, the structure in Nigeria is minimal.

In a piece written two years ago, we highlighted how funding is not the biggest problem facing Nigerian startups.

In October 2017, Nigeria moved up 24 places, from 169 to 145, in the Global Ease of Doing Business Index; it is currently ranked 131st, having moved up only 14 places. Access to credit, epipleptic power, and forex shortages remain a major issue for most Nigerian businesses.

An excerpt from the article reads:

No matter the amount of money received, if infrastructure and policies are not in place, burn rates of these startups will largely cancel out the long term effect of any kind of funds.

Aboyeji argues that for more investment returns to come to Nigeria, regulators and industry stakeholders must have a more serious conversation to bring the Nigerian market up to speed with current global realities.

Olumide Soyombo, CEO of Leadpath, believes the problem can be resolved organically.

“It’s a global marketplace. Startups can be foreign-owned, but there’s still local participation. Exits by local players also mean more investment will be done locally in building other companies,” he stated.

Emmanuel Paul
Emmanuel Paul

Writer and narrator of technology, business and policies in Africa . Looking to chat? Catch up with me (@eruskkii) on Twitter or send a mail to emmanuel@techpoint.africa

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