Study looks at the rise of the Venture Capital industry in Nigeria


With the establishment of the Small and Medium-Scale Industries Equity Investment Scheme (SMEIS) in 2001, and the liberalization of the telecommunications sector in Nigeria, venture capital activities have rapidly expanded in the country. There is a marked increase in the presence of VC firms in Nigeria. Also firms, with teams often based in London, South Africa or Ghana, looking to invest in the country. We spoke to Adebola Daramola about his recent study and the rise of the Nigerian Venture Capital industry.

What is the aim of the study?

“Prior to my research, we had academic studies focused on Venture capital (VC) in Nigeria as part of the financial system and its contribution to SME development. We had few studies that looked at the policy environment or the trajectory of VC in parallel to the emergence of New Technology Based Firm (NTBFs). There is a noticeable gap when it comes to finance, innovation and technology policy research. This exploratory study offered an ‘evolutionary perspective’ to understanding the role of policies, institutions and actors in the development of VC and NTBFs in Nigeria. The study drew strength from the systematic evolutionary approach, a method applied by Prof Morris Teubal and Dr Gil Avnimelech.”

How did you go about it?

“Primary information was from selected members of the Venture Capital Association of Nigeria (VCAN) and executives in technology-based firms. This input was supported with data collected from newspapers, journals, government legislation, published papers and websites.”

What do you mean by New Technology Based Firm (NTBFs)?

“NTBFs refer to a business within 25 years of establishment that exploit an invention or technological innovation. The term NTBFs was coined by the international management consulting firm Arthur D. Little Group.  In different parlance, NTBFs are known as tech- startups and internet entrepreneurs (though this is limiting).”

What is the origin and history of the VC industry in Nigeria?

“Rotimi Oyekanmi’s account of the VC industry evolution in Nigeria is a significant contribution. He suggested three eras: Pre 1997, 1998 to 2002 and 2003 till today. I applied this same model in describing the development of the VC industry in Nigeria.

1) Pre 1997 – The Pre 1997 era is renowned for the Venture Capital (Incentives) No.89 1993 Act that validated the creation of the National Risk Fund Plc established in 1987. It was Nigeria’s first Venture Capital Company. The Federal Government of Nigeria, through the Raw Materials Research Development Council (RMRDC) and other shareholding members like banks and manufacturing companies, established the National Risk Fund.

Noteworthy of that era is the role of Development financial institutions (DFIs) in emergence of VCs in Nigeria. They played a major part in creating the human knowledge and learning base from which the earliest VCs drew from.  At that time, we had 2 prominent VCs: National Risk Fund Plc and Venture and Trust Company.

2) 1998 to 2002 – During the second era: 1997 to 2002; we saw another Venture Capital directed policy: the Small and Medium-Scale Industries Equity Investment Scheme (SMEIS). It was a voluntary initiative that required Nigerian banks to set aside ten (10) per cent of their profit after tax (PAT) for investment and promotion of small and medium enterprises.  The products of the SMEIS scheme were Amalgamated Capital; First Funds; First SMI; SME Manager; UBA Private Equity; and in-house private equity unit within Banks.

Within this period, the military exited from the nation’s governance. We had privatization of government owned firms across Financial Services, Oil and Gas, and FCMGs. Also, we saw the liberalization of the Telecommunications sector.  These changes in ownership required long term risk capital, which only Venture Capital firms could provide. In quick response, we saw the entry of global VCs like Actis and Aureos Capital; while African Capital Alliance emerged a pre-eminent local VC firm during this era.

3) 2003 to Today – The third era is most interesting; the VC sector became a recognizable part of the Nigerian financial sector, with a constant search for opportunities across the entire business environment.  The nation is enjoying continual democratic governance, and increased entrepreneurial opportunity identification which necessitated this study on New Technology Based Firms and Venture Capital.”

Where is the industry today, how would you describe the progress made?

“It is an exciting time in the Nigeria VC industry. There are more VC firms than we have ever had before and they offer a broader sector and specialty. We have seen the rise of technology incubators and hubs in Nigeria as well as the growth of the technology entrepreneurs community.  Significantly, we see foreign trained professionals taking advantage of the opportunities in their home country while local trained graduates move quickly so as not to be left behind.

The increasing presence of technology hubs and impact investors (who often provide grant and seed funding needed to get proof of concept) have heightened the level of entrepreneurship and innovation we see today. Also, the absence of blue-collar jobs, and associated security with such offers, has equally opened a new vista of career choices for technical graduates.”

Do you have specific examples or case studies you would like to highlight?

“In my study, I highlighted the establishment of Adlevo Capital, a Lagos and South Africa based VC, as an example of a firm that has the commitment to invest in companies with technology-enabled business models across Sub-Saharan Africa. After the research study, we have seen the entry of additional funds directed at sub-Saharan African NTBFs’ like Intel Capital, Tiger Global, and EchoVC.”

Are there already successes we can point to?

Interswitch, Dealdey, IrokoTV, Jobberman, Paga and Encipher are a few successes of New Technology Based firms in Nigeria. Of these examples, all except Encipher, maker of the Inye tablets have enjoyed VC financing.”

What are the major barriers or challenges moving forward?

“I am terrified that Science and Engineering graduates in Nigeria are not creating enterprises and jobs as expected, whereas multidisciplinary team composition is at the lowest ebb in the history of our educational program and company formation in this environment.

To tackle this challenge, we need to strengthen our Sciences, Technology, Engineering and Mathematics (STEM) education with entrepreneurial education to breed more NTBFs’ entrepreneurs. We need changes in the financial environment that supports technology start-ups with grants, seed funding and long term risk capital. We need to encourage failure as a necessary learning skill program for “wannabe”- NTBFs entrepreneurs.”

What was the most surprising discovery so far?

“They are VCs willing to invest in New Technology Based firms in Nigeria just as any other African country. In the words of one of my interviewees; “money will go after great ideas with success potentials.” It is evident as we have seen tremendous interest and financial support for internet-entrepreneurs as some called them.”

Where do you see the space in 10 years?

“I foresee an exponential increase in Technology Based enterprises coming from Africa; Nigeria being a major hub. This will be driven by entrepreneurial opportunity identification of Africa’s social challenges by African with the benefit of technical and scientific knowledge; and technology. Nigeria is expected to play a major role with her youthful population and myriad developmental challenges that require urgent entrepreneurial consideration to move her up the ladder of development in a decade’s time.”

What next are you working on?

“Beyond what I have achieved with this research study, I hope to continually contribute scholarly knowledge to understanding technology entrepreneurship and innovation in Africa, due to the limited focus on Africa in existing academic literature. I am working on a single country case study of Technology Entrepreneurship, with quantitative evidences of Venture Capital financing. I hope my effort earns the confidence of other academics such that we can make a book with different country cases and relevant themes.”

What is your personal outlook for the years ahead within Africa’s Entrepreneurship, Innovation and Venture Capital space?

“I want to be part of it all. Currently, I am trying my hands at social entrepreneurship and Innovation in an online media, while still working in financial services. I am excited to develop competency over time as an academic, angel investor, and mentor to Africa’s start-up firms.”

Adebola Daramola works at ECOBANK Nigeria. You can contact him at And if you have research you would like to share with the VC4Africa community please contact us! E-mail