Nigeria’s startup ecosystem is booming, with a growing number of innovative companies emerging across the country. However, there is a stark divide between startups in the northern and southern regions of Nigeria when it comes to securing venture capital (VC) funding. Northern Nigerian startups are being left behind, and this has serious implications for the region’s economic development and tech innovation.
Northern Nigeria is home to a large portion of Nigeria’s population, with an estimated 100 million people residing in the region. However, when it comes to attracting VC funding, the region lags behind the southern region, which includes Lagos, Nigeria’s commercial capital. According to a report by Techpoint Africa, Lagos-based startups attracted 85% of all VC funding in Nigeria in 2020, leaving just 15% for startups in other regions.
The reasons for this funding gap are multifaceted, ranging from investor bias and lack of infrastructure to lack of investor awareness. As a result, many promising startups in the region struggle to secure the funding they need to scale their businesses and compete on a global scale. In this article, we’ll explore the VC funding gap in Northern Nigeria and its impact on the region’s startup ecosystem. We’ll also look at potential solutions that could bridge this gap and help Northern Nigerian startups thrive.
Overview of the Nigerian start-up ecosystem
Nigeria’s tech ecosystem is one of the most vibrant in Africa, with Lagos serving as the epicenter of the startup scene. The country is home to some of the continent’s most successful startups, including Paystack, Andela, and Flutterwave. The Nigerian government has also taken steps to support the country’s startup ecosystem, launching initiatives like the Presidential Enabling Business Environment Council (PEBEC) to improve the ease of doing business in the country and enacting the Nigerian Startup Act.
However, despite this progress, the startup scene in Northern Nigeria has struggled to keep up with the rest of the country. Startups in the North face unique challenges, including a lack of infrastructure, a Lack of investor awareness to enable founders to raise angel investment, and investor bias towards Lagos-based startups. As a result, the region’s startups have struggled to secure the funding they need to scale their businesses and compete on a global scale.
Factors Contributing to the VC Funding Gap in Northern Nigeria
There are several factors contributing to the VC funding gap in Northern Nigeria, including a lack of investor awareness, investor bias, and a lack of infrastructure. Due to a lack of investor awareness in Northern Nigeria, as well as a culture of investing in traditional firms rather than high-growth businesses, raising angel investment in the North has proven problematic. Many start-ups require early-stage angel capital from family and friends, as well as community leaders, to develop their MVP and prove their idea before seeking more funding (Including VC funding). Yet, the typical Northern Nigerian Angel Investor lacks a thorough understanding of the venture capital concept and hence avoids participating in start-up angel rounds.
Furthermore, many investors are based in Lagos and are more likely to invest in startups based in the southern part of the country. This bias has made it difficult for startups in the North to secure funding, even if they have promising ideas and strong teams.
In addition to investor bias, the lack of infrastructure in the North has also hindered the growth of the region’s startup ecosystem. The region has limited access to reliable power and the internet, making it more difficult for startups to operate and scale their businesses. These challenges have made it difficult for Northern Nigerian startups to attract investment, as investors are often hesitant to invest in companies with limited infrastructure.
Case studies of successful Northern Nigerian start-ups
Despite the hurdles that Northern Nigerian startups encounter, the region has produced several success stories. Sudo Africa and FarmCrowdy, for example, have recently received venture capital funding, while others, such as Zainpay, FlexiSAF, Dilali, Spendo, ShapShap, and YDS Online, have received alternative sources of finance. Many of these start-ups failed to acquire venture capital due to the concerns listed above, but they were able to raise angel investments, private equity, and in some cases grant money to help them get through the early stages of development.
These success stories highlight the potential of Northern Nigerian startups and the impact they can have on the region’s economy. However, they also highlight the need for more investment and support for startups in the North.
Solutions to Bridge the Funding Gap
There are several potential solutions to bridge the funding gap and support Northern Nigerian startups. One such solution is the establishment of regional venture capital funds. These funds would focus on investing in startups in the North and providing early-stage support to enable the start-ups to get into the investment pipeline. These would help to address the bias towards Lagos-based startups.
Another potential solution is the development of infrastructure in the North. This could include investments in reliable power and internet, as well as the establishment of co-working spaces and other resources for startups. With the recent launch of Starlink in Nigeria, some progress has been made in this area, giving people in remote areas access to the internet. CoLabs, Start-up Kano, TTLabs, Center for Strategic Business Development, The Cans, Sublimers, and other co-working spaces and accelerators are also sprouting up.
Finally, there is a need for increased investor awareness of the startup scene in the North. This could be achieved through events and conferences that showcase the potential of Northern Nigerian startups and highlight the investment opportunities available in the region.
The role of government in supporting start-ups
The Nigerian government has taken steps to support the country’s startup ecosystem, but there is still more that can be done. One potential role for the government is to establish policies and regulations that support startups and encourage investment in the sector.
The government could also provide funding for startup incubators and accelerators in the North, which would help to support the growth of the region’s startup ecosystem. Additionally, the government could work to improve the infrastructure in the North, which would benefit startups and other businesses in the region.
Finally, the government should ensure adequate Northern representation in Programmes designed for start-ups to reduce investment bias towards start-ups of Northern Origin.
Private sector initiatives to support Northern Nigerian start-ups
In addition to government support, there are also private sector initiatives that can help to support Northern Nigerian startups. One such initiative is the establishment of angel investment networks in the North. These networks would provide funding and support for startups in the region and would help to address the funding gap.
Another potential initiative is the development of mentorship programs for Northern Nigerian startups. These programs would provide guidance and support for startups, helping them to navigate the challenges of building and scaling a business.
Lessons from other emerging markets
Finally, some lessons can be learned from other emerging markets that have faced similar challenges. One such market is India, which has a thriving startup ecosystem but also faces challenges with access to funding and infrastructure.
In India, the government has established policies and programs to support startups, including the establishment of a $1.5 billion fund to support early-stage startups. The Indian government has also worked to improve the country’s infrastructure, including its digital infrastructure, to support the growth of the startup ecosystem.
These lessons from India and other emerging markets can be applied to Northern Nigeria, helping to support the growth and development of the region’s startup ecosystem.
Conclusion and Call to Action
In conclusion, the VC funding gap in Northern Nigeria is a significant challenge that is hindering the growth and development of the region’s startup ecosystem. However, there are potential solutions that could bridge this gap and help Northern Nigerian startups to succeed.
To address the funding gap, we need to establish regional venture capital funds, develop infrastructure in the North, and increase investor awareness of the startup scene in the region. Additionally, we need to provide support for startups through government policies and programs, as well as private sector initiatives like angel investment networks and mentorship programs.
By taking these steps, we can help support the growth and development of Northern Nigerian startups and unlock the potential of the region’s startup ecosystem.