Nigeria must become a nation of angel investors

Nigeria’s unemployment rate is a ticking time bomb, and without urgent action, it risks exploding. After years of slow economic growth, the unemployed population in Nigeria has surged to 20.9 million. The trend is not slowing down. Unemployment hit an all-time high of 20.3 percent last year. The task at hand is daunting: Nigeria must create over 40 million additional jobs by 2030 to keep pace with people entering the workforce. As part of his “The Next Level” campaign agenda, President Buhari has made it a priority to solve youth unemployment. Last month, the Ministry of Labour vowed to invest in skills training for young people as part of plans to boost employability. But this response is astonishingly inadequate.

Rather, to stimulate job creation at scale, Nigeria must encourage and support entrepreneurship. Nigeria is full of entrepreneurial dynamism and hustle; we are not a nation that lacks extraordinarily capable, hardworking, and driven people. But what Nigerian entrepreneurs do lack is capital to grow and scale their businesses. To solve this problem, Nigeria must become a nation of angel investors.

Capital is the life force of growing and scaling businesses. Yet, access to capital is visibly and painfully absent in Nigeria.  Despite being the backbone of the economy, less than a third of the country’s small and medium-sized businesses have successfully obtained a loan from a bank. And, for the lucky few entrepreneurs who can access credit, the cost of capital from banks is eye-wateringly expensive. This means that entrepreneurs must usually fund their businesses with their own savings in a country where only 40 percent of adults have access to a transaction account. Not only does the funding barrier tend to restrict entrepreneurship to the elite, it excludes potential entrepreneurs who have great ideas but no money to test or scale their concepts and limits the critical mass of successful businesses that can produce jobs.

Despite the limited access to capital in Nigeria, all is not lost. Angel investors, individuals who are able to invest between $25,000 and $250,000 in businesses, can close the crucial funding gap. Angel investors provide early stage funding to entrepreneurs, many of whom have built a successful minimum viable product which they have introduced into the market, but need more capital to test, refine, and grow their business. Moreover, angel investors, who are often entrepreneurs themselves, are able to spot entrepreneurial talent at an early stage. Through their own experiences and proximity to the market, they can mentor and coach entrepreneurs. They can also serve as partners through multiple rounds of funding, providing guidance through the process, while brokering introductions for entrepreneurs to investors in their networks. By this definition, Nigeria already has the makings of an angel investor hub.

Nigeria’s commercial capital, Lagos, is famous for its concentrated pool of extreme wealth, with three billionaires, hundreds of multimillionaires, and thousands of millionaires calling it home. Yet, few of Nigeria’s high net-worth individuals (HNWIs) have the appetite to invest in early-stage companies, especially in the tech sector. Nigerian wealthy industrialists and oil magnates, the majority of whom are in their 60s, do not understand tech start-ups as an asset class, preferring to put their money in real estate or commodities. But, Nigeria’s industrialists should take the lead in investing in promising tech start-ups. Not only would angel investing allow top industrialists and CEOs to develop experience and knowledge in backing tech start-ups, it could serve as a pathway to developing venture investments led by large Nigerian corporates. This would help deepen Nigeria’s nascent but thriving tech ecosystem even further.

The recent fundraise by Nigerian fintech company TeamApt points to the way that large Nigerian corporates can start approaching investments in start-ups. In February, TeamApt announced a $5 million series A fundraise to fund its expansion and move into consumer finance. Jim Ovia, the founder and CEO of Zenith Bank, led the investment round in TeamApt via his investment firm Quantum Capital Partners. As TeamApt provides payment solutions for banks, it is logical that banking clients, such as Zenith Bank, familiar with its technology and its contribution to the bottom line, would invest. Nigeria needs hundreds of more deals like TeamApt’s.

Jim Ovia is the exception, not the rule, of an older generation of Nigerian businessmen investing in tech start-ups. Yet, among Nigeria’s young tech founders, who have returned to Nigeria from the US or Europe, angel investing is a logical next step after building a successful start-up.

In recent years, I’ve backed a number of fintech entrepreneurs focused on creating value and improving people’s livelihoods. These include amongst others, Bankly, founded by Tomilola Adejana. Bankly is an innovative twist on agent banking, digitizing cash to increase financial inclusion in Nigeria. I’ve also backed Agromall, founded by Adefemi Adeniyi, which revolutionizes African agricultural value chains by digitising the entire farming value chain from end-to-end. Agromall ultimately improves financial inclusion by making farmers bankable with access to credit markets.

Nigeria has no lack of brilliant business ideas which can employ millions of Nigerians. The dire outlook on employment makes supporting entrepreneurs all the more urgent. Given the scarcity of institutional capital, Nigerian angel investors must serve as a bridge to capital and resources that will allow entrepreneurs to scale their businesses. If Nigeria is to grow its pool of promising and talented entrepreneurs, it must become a nation of angel investors.

OPEYEMI ODEYALE

Odeyale is the Co-founder/COO of Ping Express a US-based money transfer company serving the Nigerian market. He is also an advisor/board member of Bankly and Agromall.