How much do Nigerians know about Startup Financing?
Imagine you’ve got a brilliant business idea; you’ve done your market research and surveys and there’s a huge demand as well as the right product-market fit. You have also gotten a co-founder as well as assembled a team of talented and experienced staff to launch a start-up off this idea. Now it’s time to think about funding; how would you fund your startup? What startup financing options are you aware of that can help you get off the launch pad and hit the ground running?
We asked over 4,000 Nigerians the above questions and we got interesting answers that gave some insights into the way people in Nigeria think about startup financing.
In a rush? Just surfing? Don’t have the time to sift through all the insights from the charts and data? All good, we got you covered, here are two major things we learnt from the individuals we spoke to about how Nigerians perceive startup financing:
A higher percentage of Nigerians are more aware of traditional financing options (loans and grants) as opposed to crowdfunding and venture capital options like angel investing. Business is mostly thought about in a traditional SME context as opposed to the startup and venture capital framework.
Our respondents appeared to be more aware of loan financing options compared to equity financing.
If you’re still reading, you’re definitely here for the deep dive and comprehensive insights; we’ll give you just that. Now let’s get to it.
Nigeria has become famous for being Africa’s Silicon Valley with the highest number of startups on the continent while producing 3 out of 4 African Unicorns. Despite this impressive startup ecosystem, a sizable 43% of respondents to our survey said they were not aware of any startup financing options. Meanwhile, the majority of people we interviewed expressed awareness of some type of funding for business ventures.
This general unfamiliarity with startup financing options suggests that while the startup business model is getting more popular in Nigeria, many entrepreneurs still think of their ventures as pathways to traditional Small and Medium Enterprises (SMEs).
We find further evidence of this idea in answers to follow-on questions about familiarity with specific methods of financing; respondents record higher degrees of awareness with traditional sources of funding like loans (40%) and grants (33%), than they do with newer modes of financing like crowdfunding (17%) and angel investing (8%).
Perceived Obstacles to Startup Financing
We asked our respondents what they thought were the biggest challenges to securing funding for a startup. Once again, responses pointed to the idea that Nigerians still have a fairly traditional understanding of seed financing. The top-cited challenge (38%) was a lack of assets to use as collateral, followed by failure to meet loan criteria (20%), and failure to qualify for grants (17%). Only 11% of respondents cited a shortage of investors as the most significant obstacle to securing startup financing.
Also, the selection of lack of collateral as the #1 challenge to securing seed funding by most respondents points to a possible low level of awareness about current loan requirements. Nigerian financial institutions- particularly banks- have shifted their focus from solely requesting physical assets as collateral to securing loans majorly with cash flow, only taking collateral as additional security. Newer financial technology companies go as far as not requesting any collateral at all, lending money strictly against cash flow. Based on this trend, it appears counterintuitive that not having collateral was widely considered as a major hindrance to getting startup financing.
In Startup Nation, Dan Senor and Saul Singer describe Israel’s journey towards becoming the world’s startup capital. There is no doubt that Nigeria is on a similar journey with the impressive success recorded within the ecosystem. There has also been the emergence of local VC firms as well as private angel investors. Despite the availability of these options, evidence suggests that there’s still an awareness gap to be bridged. There’s a need to get more people informed about venture capital and stimulate a startup culture, so entrepreneurs can adopt a startup mindset and take advantage of equity financing to launch and run their businesses.
We can’t wait to hear the success stories from the Nigerian startup space. Perhaps we’ll have the next Uber but for air travel or a biotech startup that will create the vaccine for HIV or cancer. There’s no limit to what can be achieved.
For more consumer insights on attitudes towards the startup scene, please drop us a note. What other topics are you curious about? Share your thoughts with us at firstname.lastname@example.org.
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