Three things tech companies eyeing Nigeria Stock Exchange should consider
Private equity and venture capital may be the biggest sources of investment in the tech ecosystem in Nigeria, but they are yet to sufficiently address the problem of access to funds for many tech companies. Hence, there is always a scramble for the next funding opportunity available.
Over $2.9 billion have gone the way of 177 tech startups in Nigeria so far, according to data from Startuplist Africa. While the investment is spread across the various segments of the ecosystem it is still not enough to sustain the growth and expansion of the many startups that are in the country. This is why the Nigeria Stock Exchange (NSE) represents an option for many companies.
To be sure, the NSE is the physical market of the Nigerian capital market, established in 1960 to provide listing and trading services, as well as electronic clearing, settlement and delivery (CSD) services through Central Securities Clearing System (CSCS) Plc Act. the instruments listed in the exchange include Federal Government development loan stocks, state government bonds, commercial and industrial loan stock, equity stocks, preference shares, etc.
The Nigerian Stock Exchange has welcomed a decent number of technology companies including MTN Nigeria, Airtel Africa; etranzact; Computer Warehouse Group (CWG); Triple Gee & Company Plc; Omatek Plc; Chams Plc; and Courtville Business Solutions Plc. Many more businesses are constantly looking in the direction of the stock market to raise funding for expansion.
There are many benefits for companies choosing to list on the stock exchange. For some companies, listing on a stock exchange is a strategy to increase shareholder base and enhance credibility. Going public can also improve a company’s visibility and credibility among institutions and the investing public due to complying with various regulatory norms and ensuring transparency while conducting operations. Listing also allows shareholders to transact in the shares of the company, sharing risks as well as benefiting from any increase in the organisational value.
Although stock exchanges all over the world share some similarities, there are marked differences which companies need to consider. Niyi Toluwalope, CEO of etranzact one of the fintech companies on the Nigerian Stock Exchange, shares three points that could help companies looking in this direction.
Appetite for risk
The Nigerian Stock Exchange, according to Toluwalope, attracts investors that are interested in steady capital. Tech companies are mainly after growth capital.
“For example, I want to buy shares in companies that are listed because I know it is going to pay me dividends every year. Hence, it is more like a retirement plan rather than an aggressive investment play because I know that if I put money in this company in the next three years the money is going to grow fivefold,” he explained.
This is mostly responsible for why the stock exchange does not have a strong representation on the GDP of the country. Usually, a strong stock market typically signals a healthy economy. This is not the case for the Nigerian stock market despite the robust growth it has recorded over the years. Today’s economic growth is powered by agriculture and SME growth. Interestingly, not much of the capital in the exchange goes to these areas. The Nigerian stock market capitalisation to the GDP from 2019 is 9.6 percent whereas the world average in 2019 based on 58 countries is 83.64 percent.
In the absence of a healthy risk appetite from the stock market, many foreign private equity investors with high risk appetite have dominated investments in technology companies in Nigeria.