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Startup Wars

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This Space is For Sale

Startup Wars

Chuka Ewereuwaona
Startup wars

The startup community in Nigeria is still a long way off from being positioned as key for the country’s economic growth


By Chuka Emereuwaonu

The Nigerian economy does not exactly present the most sunny-side conditions for entrepreneurs. On the contrary, the conditions are rather turbulent.

Nigerian startups are in a guerilla warfare in which they are being attacked from all sides; depreciating markets, fluctuating exchange rates, political bureaucracies, broken government structures, tight fiscal policies, tough credit systems, stiff competition, the list goes on.

It’s ironic and rather unfortunate that the Nigerian entrepreneur is faced with such a predicament given that small and medium enterprises account for about 96% of Nigerian businesses.


India vs. Nigeria 

Let’s take a cursory look at the Indian economy and make some comparisons. India happens to have a similar economic structure to Nigeria; both economies are mixed and have a large young population.

SMEs account for a staggering 95% of the total industrial units and employ 40% of the Indian workforce – numbers which are not far from the Nigerian statistics.

Over the last 10 years the Indian economy has developed something of a reputation in the tech space and also for how its small businesses flourish.

It currently stands (and has maintained this position for almost a decade) as the third largest startup base in the world with over 5,000 tech startups, adding about 1600 of them in 2016 alone.

As opposed to Nigeria however, the Indian economic growth has been rather exponential.

Reports from Forbes for the first quarter of 2018 showed that the Indian economy recorded a higher economic expansion rate than China by 0.9%.

Nigeria may have similar molds of a budding tech-driven and diversified startup economy, but a lot of work remains to be done.


The Biggest Obstacle

Now, in reading lots of articles, business surveys, papers, blog posts and social media conversations, one thing is clear: The Nigerian entrepreneur’s biggest obstacle is credit.

You might say it’s capital but the thing about financial capital is that it’s either you ‘own funds’ or you ‘owe funds’ which brings us back to question mark on credit.

There are so many allegations that the loan portfolios of Nigerian banks are dominated by big firms. My question towards this allegation is “why not?”.

The economic situation and the obvious risk involved pushes banks further away from equity participation and venture capital activities for SMEs.

The Nigerian economy is a jungle and in the jungle it’s all about survival. On a general note also, the SME community in Nigeria (I am referring to Nigerian startups considered as a whole) are still some way off from creating a real consolidation and cementing their place as a key factor for the country’s economic growth.

The consequence of this is that the Nigerian economy becomes more skewed towards a bank-based economy even while possessing several indicators and parameters of the classical market-based economies of the United States and the United Kingdom.

I will reference a paper by Ekaterina Murzacheva on the Credit Risk Evaluation in the Small Business Activity. In this very paper, the writer focuses on the individual aspects at the macroeconomic level.

The writer uses a certain risk metric to analyze the three distinct levels of capital.

The first which is self-financing poses the lowest risk level but also has the lowest capital price due to the limitations of the business owner.

The third which is formal capital demonstrates the highest risk level. It is the liability to a creditor whose strategy implies limited credit risk acceptance because of the external regulation and internal policy.

This level of capital refers mainly to loans and advances received from commercial banks. I will apply the logic of ‘virtue lies in the middle’ to this situation.

The solution to the problems of the Nigerian entrepreneur lies in the second capital level which is Informal capital.

Ekaterina Murzacheva describes it as the liability to an investor who is ready to accept a large portion of credit risk due to the specific business nature.

If the Nigerian economy is to be driven forward by what I call ‘a massive capitalist mobilization’, which is basically the empowerment of SMEs, then modern corporate structures with the stability and financial knowledge must be created for private investors to provide credit to small businesses.

This would reduce the level of risk on the side of the investors and provide more capital on a wide scale for entrepreneurship while breaking the monotony of the banking sector in credit facilitation.


Bridging the Gap

These structures will bridge the gap between investors and startups. They will integrate social networking between investors and entrepreneurs, financial technology, credit risk analysis, auditing and financial advisory.

These structures will be corporate bodies where bigger businesses that wish to fund startups can make the right investment decisions and startups that need funding can get the money they want.

Now, you might be thinking that this is referring to equity crowdfunding or the already existing capital markets. It will include this and so much more.

A structure such as this must educate the investor and the startup on credit and risk management.

The investors will be able to make informed investment decisions based on the statistically ascertained credit worthiness of the startup, otherwise called credit scores.

The credit risk calculations will help investors analyze the businesses they wish to fund.

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These calculations can also encompass other strategic and business risks. But more than just being a place to give and get funds, this structure should ultimately be a meeting point for Investors and startups for all sorts of business purposes.

These financial structures we are looking at should also be able to tap into new technology in order to deliver financial services to both the investors and startups more efficiently.

They need to create more dynamic avenues of investment through cryptocurrency, open banking, APIs (Application Programming Interface).


Machine Learning

The incorporation of machine learning in this whole affair is also a major point. Dinesh Bacham and Dr. Janet Zhao did infer in their article on Machine Learning in Credit Risk Modelling, that a machine learning model, unconstrained by some of the assumptions of classic statistical models, can yield much better insights that a human analyst could not infer from the data.

The key to unlocking these opportunities for startups in Nigeria lies, alongside other things you might think of, in the effective combination of financial technology, credit risk modeling and management, data analytics and the cherry on top which is machine learning.

The business models that combine these areas in the Nigerian market will cause a paradigm shift in credit facilitation.

Many companies in Nigeria are making a decent attempt at increasing access to funds and investment opportunities for startups.

Elena Mesropyan, global head of content at MEDICI, wrote a very exhaustive piece which she titled ‘56 FinTech Companies in Nigeria Extending Access to Financial Products for Inclusive Growth’.

Here, she mentioned several companies and emerging businesses that have similarities or near replications of some of the ideas I have enumerated above.

For me, the key word is dynamism.

A structure or business such as the one I am theorizing must be dynamic enough to stand as an excellent intermediary between startups with zero funds and the biggest global investors.



The battle against credit is one that startups in Nigeria are heavily losing. What these startups need is an ally – an ally that will flip the narrative of accessing funds in Nigeria.

Imagine what LinkedIn did between employers and job seekers and then try to visualize how far this can go.

Some of the greatest wars in history were won simply because of a formidable alliance.


Editor’s Note: This article was originally published in The Spark Magazine. Find the magazine here to read other articles.

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