Access to growth capital remains a key challenge for many Nigerian businesses, especially for startups. In this interview with Solomon Nathaniel, Investment Banker, DLM Capital Group, he shares insight with BusinessDay’s Endurance Okafor on how the DLM’s maiden Fintech challenge- Pegasus is going to help startups with funding and advisory. Excerpt:
What gave birth to the idea behind Pegasus Fintech Challenge, considering 2021 is going to be the maiden edition?
There is a low level of participation of venture capital/growth funds in FinTech investments by Local investors (Institutions and Individuals)/Players. The non-existence of numerous marketplace platforms where FinTech startups can demonstrate their innovative offerings to potential investors, and the absence of developed platforms for alternative funding markets providing capital formation for FinTech startups are challenges facing FinTech startups. In 2019, DLM Capital provided funding of US $1 million in capital under a first-of-its-kind securitization vehicle lease receivables under a Private Company Bond program. The transaction was just the right impetus to further provide support to the fintech networks in Nigeria. The Pegasus challenge will help source funding and provide advisory to the winners of the challenge. The DLM Capital Pegasus Fintech Challenge aims to help accelerate seed funding and investments in fintech startups in partnership with Africa Fintech Foundry and is open to all Fintechs operating in Nigeria. Interested participants can apply by sending details of their product as well as a pitch deck to mypitch.dlm.group.
What is your take on the current state of the Nigerian tech industry, especially the Fintech sector that has become a top investment choice for investors?
Although Nigeria remains a top VC destination with over $300 million in investments, most funding activities are attributed to the startups’ place of incorporation. Startups whose place of incorporation are in countries outside of Nigeria receive more funding than those headquartered locally because foreign VCs prefer African startups to be incorporated in business-friendly environments. According to Briter Bridges, a London-based data-driven research company, startups with incorporation in South Africa received $119.7 million of the total funding while African startups incorporated in U.K and Kenya raised $107.6 million and $77.1 million, respectively.
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As a result of this, Nigerian startups are rapidly incorporating their startups abroad and this seems like a tendency that might go on for long because of the difficulty of doing business in Nigeria. At DLM Capital, we believe it is important for the Nigerian government to make the fintech ecosystem friendly for fintech startups and investors to enable startups to site Nigeria as a primary location for incorporation.
How much of an impact do you think the Pegasus Challenge will have on Nigeria’s tech sector considering only three winners will get seed capital from the Challenge?
We expect the Pegasus Challenge to create a massive impact in Nigeria. This year’s challenge is directly targeted at fintech start-ups only and so is quite a niche contest. This is also the first time DLM Capital will be engaged in a fintech contest, and it is best to go with a figure that we can wholly support. As we continue to hold this annually, the number of winners will be increased, and the scope expanded to accommodate the tech industry.
What are some of the qualities you will be looking out for in picking the winners of the Pegasus Fintech Challenge?
The selection criteria for the challenge include Reach, Innovation, Sustainability, Scalability, Empowerment, and Responsibility.
Access to early-stage finance is one of the critical challenges of tech start-ups in Nigeria, what are the funding opportunities you can recommend to innovators?
The Funding opportunities are Venture Capital firms with interest in tech startups, Grants, etc. We’ve seen and read several startups already benefitting from such investments.
What are some of the challenges, aside from growth capital, that may be daunting to the development of tech start-ups in Nigeria?
The regulatory environment remains challenging and sluggish. To put this in context, Tayo Oviosu (CEO, Paga) once said at an Omidyar Event for fintech players that it took them about two years to get approval for a USSD code and this slowed down their operations. Access to infrastructure is also a significant challenge for fintech founders and operators – and despite the establishment of the National Collateral Registry which was launched in 2016, most fintech establishments still find access to infrastructure problematic. Data is an important part of business models in financial services, it enables organizations to accurately design and target products and own the customer relationship. According to a McKinsey report published in September 2020, Nigeria’s data-protection regulation currently limits data harvesting, thus players that already have access to historic data could have a competitive edge.
You said the Pegasus Fintech Challenge will be an annual event. Are there plans to increase the number of innovators that will be given seed capital in the subsequent editions?
Yes, most certainly.
DLM Capital has been a key player in helping some companies to raise funding through the Nigeria debt capital market. What is your advice to tech start-ups in regard to preparing themselves for investment?
My advice will be to be cautious and detailed when taking on seed funding and several funding opportunities. They should ensure proper due diligence is done, get the needed guidance and advice from renowned professionals/institutions.
Most importantly, ensure proper bookkeeping and adherence to stated regulations.
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