Investors are once again writing big cheques for Nigerian tech companies as normalcy begins to return.
While the balance sheet of the company, the customer acquisition numbers, and what stage of development the company is currently at, are significant factors that help investors decide which start-up will be getting their money, there is a big catch to land big-ticket funding.
Where is the company incorporated?
Nearly 90 percent of the companies that have closed big-ticket funding in 2021 so far were incorporated either in the US or UK.
In the month of March alone, tech companies have raised more money than they did in the whole of 2020. However, the about $204 million raised so far have mostly come from companies with publicly known incorporation records outside the continent. In fact, four out of the six companies accounted for about $195 million raised so far.
It is the same for companies that have raised funding since January.
uLesson which raised the first big-money – $7.5 million – in 2021 was founded in 2019 and incorporated in the state of Delaware in the United States. Flutterwave, which has closed the most funding so far in 2021 was also incorporated in Delaware and identifies its head office as 1323 Columbus Avenue, San Francisco CA 94133 USA with company number 6031713. Cowrywise which raised $3 million from Quona is another company incorporated in Delaware. Afriex which raised $1.2 million was incorporated in California, US.
Others are Kwik Delivery, which raised $1.7 million, incorporated in Paris, France, and Kuda Bank, which raised $25 million was incorporated in London.
A local investor may not think too much of this, but a tech company incorporated in Nigeria stands little chance of convincing foreign investors they are worth their big cheques.
So why do Nigerian founders prefer to go outside the country and even continent to incorporate the entity that gives birth to their ideas? The least motivation is the difficulty involved in incorporating companies in Nigeria.