The VC Funding Gap: Why Northern Nigerian Start-Ups are Being Left Behind

Nigeria’s start-up ecosystem is booming, with a growing number of innovative companies emerging across the country.

However, there is a stark divide between start-ups in the northern and southern regions of the country when it comes to securing venture capital (VC) funding. Northern Nigerian start-ups 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 about 100 million people residing in the region. However, when it comes to attracting VC funding, the region lags against its southern counterpart, which includes Lagos, Nigeria’s commercial capital.

According to a report by Techpoint Africa, Lagos-based start-ups 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 start-ups in the region struggle to secure the funding they need to scale their businesses and compete on a global scale.

This article will explore the VC funding gap in Northern Nigeria and its impact on the region’s start-up ecosystem. We’ll also look at potential solutions that could bridge this gap and help Northern Nigerian start-ups 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 epicentre of the start-up scene. The country is home to some of the continent’s most successful start-ups – Paystack, Andela, and Flutterwave.

The Nigerian government has also taken steps to support its start-up 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 Start-up Act.

Despite this progress, the start-up scene in Northern Nigeria has struggled to keep up with the rest of the country. Start-ups 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 start-ups. As a result, the region’s start-ups 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

As mentioned above several factors contribute to the VC funding gap in Northern Nigeria – lack of investor awareness, investor bias, and 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 and 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-ups’ angel rounds.

Furthermore, many investors are based in Lagos and are more likely to invest in start-ups in the southern part of the country. This bias has made it difficult for start-ups 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 hindered the growth of the region’s start-up ecosystem. The region has limited access to reliable power and the internet, making it more difficult for start-ups to operate and scale their businesses. These challenges prevent Northern Nigerian start-ups from attracting investment as investors often hesitate to invest in companies with limited infrastructure.

Case studies of successful Northern Nigerian start-ups

Despite the hurdles that Northern Nigerian start-ups 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 secured alternative sources of finance. Many of these start-ups failed to acquire venture capital because of the concerns listed above but could raise angel investments, private equity and, sometimes, grant money to help them get through the early stages of development.

These success stories highlight the potential of Northern Nigerian start-ups and the impact they can have on the region’s economy. However, they also highlight the need for more investment and support for start-ups in the North.

Solutions to bridge the funding gap

There are several potential solutions to bridge the funding gap and support Northern Nigerian start-ups. One such solution is the establishment of regional venture capital funds. These funds would focus on investing in start-ups in the North and provide 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 and the establishment of co-working spaces and other resources for start-ups. 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 start-up scene in the North. This could be achieved through events and conferences that showcase the potential of Northern Nigerian start-ups 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 start-up ecosystem, but more can be done. One potential role for the government is to establish policies and regulations that support start-ups and encourage investment in the sector.

The government could also provide funding for start-up 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; thus, benefitting start-ups 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 those 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 start-ups in the region and help address the funding gap.

Another potential initiative is the development of mentorship programs for Northern Nigerian start-ups. These programs would provide guidance and support for start-ups, 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 start-up ecosystem but also faces challenges with access to funding and infrastructure.

In India, the government has established policies and programs to support start-ups, including the establishment of a $1.5 b fund to support early-stage start-ups. The Indian government has also worked to improve the country’s infrastructure, including its digital infrastructure, to support the growth of the start-up 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 hindering the growth and development of the region’s start-up ecosystem. However, there are potential solutions that could bridge this gap and help Northern Nigerian start-ups 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 start-up scene in the region. Additionally, we need to provide support for start-ups 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 to support the growth and development of Northern Nigerian start-ups and unlock the potential of the region’s start-up ecosystem.

This article, by Surayyah Ahmad Sani, first appeared in Medium on Mar. 25, 2023. Surayyah is an entrepreneur, an early-stage investor, and an advocate for Northern Nigerian women in tech.

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