Funding FinTech in Nigeria can be quite challenging at
the beginning as the ideas most times are novel and innovative. Lack of funding
or access to credit has led to winding up of some innovative tech businesses.
Silicon Valley say 50 percent of startups don’t survive first 5 year, and lack
of funds is said to be the prime cause. Like every other business, Fintech
companies can sources their capital from different sources. These sources can
include:
- Personal savings
- Seed funding or series round
- Venture capital
- Bank loan
- Equity funding
- Capital market
Personal Savings
The first source of fund for your business as
a startup should be your personal savings. Having fantastic business idea alone
is not enough you need to have some finance to commit to the business.
Investing your own money first is a signal to prospective investors and grant
donors how serious you are in your business pursuit. No one will be willing to
invest his money in your business idea when you are not will to invest in it.
Putting in your finance and getting some works done have the capacity to turn
your business idea from a mere business idea into a potential business
opportunity. Promoters of fintech would need to finance their business for the
first few month or years, before they would be able to get funding through seed
funding or series round, bank loans to expand their business.
Read also: Sources of Finance for Entrepreneurs in Nigeria
Bank
loans
Bank loans are the foremost commonly used
source of funding for little and medium-sized businesses, unfortunately, most
banks in Nigeria no longer give loans to startup entrepreneurs. Banks usually
ask for some form of security through collaterals (assets in choice locations)
and strong account statement. Consider the very fact that each one bank offers
different advantages, whether it's personalized service, interest rate or
customized repayment. It is a good idea to move around and find the bank that
meets your specific needs.
Seed Funding or Series Round
Seed funding or series rounds is another
veritable source of capital for FinTech startups in Nigeria. In fact, it has become the main source of external funding of tech startups in Nigeria in recent times.
Most startups go through a Series A, B and C round, to secure
sufficient funding to grow and scale their business, add new products to their
portfolio, and return good profit to investors.
Venture Capital
The first thing to bear in mind is that risk
capital isn't necessarily for all entrepreneurs, but then it is a viable source
of capital for tech startup. Right from the beginning, venture capitalists are
looking for technology-driven businesses and corporations with high-growth
potential in sectors like information technology, financial technology, communications,
agritech and biotechnology.
Venture capitalists invest huge sums of money
in emerging or expanding tech companies with tremendous growth and traction
potential, and typically invest much more capital than angel investors. They
take an equity position in the business to assist it perform a promising but
higher risk project. Therefore venture capital is an ideal source of funding
for FinTech business as most financial technology projects are innovative with
high risk. But know that it involves giving out some ownership or equity in
your business to external party. Venture capitalists also expect a healthy
return on their investments, often generated when the business starts selling
shares to the general public. Ensure to choose investors who bring relevant
experience and knowledge to your FinTech business.
Capital Market
Fintech companies can raise fund by listing
in the capital market and conducting initial public offering (IPO) to sell its
shares the general public, although this source of funding is mainly for
existing tech companies with financial books, and it is more common their
international equity markets. Coming home, Nigerian Stock Exchange is
repositioning the Alternative Security Market ASM to provide Growth Board for
listing opportunities and capital funding for SMEs, startups and venture/seed
capital companies targeted at creating window to accommodate starts with
innovative prospective business that could transform the capital market in the
nearest future.
To
leverage the Growth board, which is primarily targeted at startups, tech
companies and venture business, such business must be a public limited liability
company, have minimum market capitalization of at least N50 million, a public
minimum shareholders of 10% and 25 shareholders. Such company is required to
submit its semi-annual and annual company`s statement, while the Nigerian Stock
Exchange on the other hand will provide strong support structures for the company including
accounting, audit and legal services at a pre agreed and prepaid rate with the
startup.
Capital
market remains surest way capital funding for businesses. Big tech companies
like Facebook, Alibaba were able to scale up their businesses through the
capital market. Facebook raised $16 billion via Initial Public Offering in
2012.
Most
African tech companies are usually skeptical of the capital market, maybe they
do not want to lose control of their businesses when they go public as having
more shareholders leads to dilution. Another reason may be the stringent reporting
requirements.
Read also: List of Top CBN Approved FinTech in Nigeria