Nigerian tech founders are being deterred from itemizing on the native inventory trade as a result of they don’t perceive how the itemizing course of works, in response to a report from Lagos-based regulation agency TLP Advisory.
The report finds that 53% of founders say they don’t seem to be sufficiently conscious of how the Nigerian Inventory Trade (NGX) itemizing course of works. Solely 21% would contemplate an inventory in any respect – with many preferring to checklist overseas – and 46% would like to exit their funding by way of an acquisition.
“Whereas some view NGX itemizing as theoretically viable, they lack readability on sensible necessities, timelines, or pathways to get there. NGX’s restricted engagement with the startup ecosystem deepens this problem. Not one of the founders interviewed reported direct NGX outreach, academic classes, or proactive communication about itemizing alternatives,” the report discovered.
The report says that an “consciousness hole” between startups, buyers, and the trade must be mounted via “constant outreach and engagement, equivalent to roadshows, workshops, playbooks, and advisory help”.
“Educate founders on itemizing advantages and processes whereas equipping advisers and buyers to have interaction extra successfully with venture-backed corporations,” the report advises.
Are founders prepared for better scrutiny?
However different consultants warn that founders should be ready for elevated scrutiny if they’re to think about itemizing.
“Earlier than advising the NGX, I might advise the startups and buyers on the right way to construct belief,” says Kayode Odeleye, managing accomplice at 23mile, which invests in distressed venture-backed startups.
“The very first thing is to cease the strategy of “faux it until you make it.” Traders should be extra clear, drive transparency with their startups, and guarantee their monetary studies imply one thing. They should be disciplined and able to face scrutiny very early on.”
Odeleye stated that skewed valuations for Nigerian startups make listings unrealistic.
“First is the worldwide drawback of a valuation mismatch. Over the 10-year interval when there was loads of capital, we noticed startups elevate cash at ridiculous valuations. Startups with subsequent to no income in naira have been being valued at $50m by VC buyers who centered solely on promoting to the subsequent individual. The problem regionally and globally is that valuation mismatch the place a startup valued at $50m on the final spherical could possibly be price solely one-tenth or one-fifth of that in the event that they tried to checklist. Itemizing at $10m after elevating at a $50m valuation wipes out current buyers.”
Startups level to foreign money points
Greater than two-thirds of the startups surveyed stated that “foreign money and overseas trade mismatches” have been the primary issues stopping them from itemizing on the NGX, which is denominated within the native naira foreign money.
It’s because most startups backed by worldwide buyers have the US greenback as their accounting foreign money and due to this fact additionally have to checklist in the identical foreign money. The latest instability of the naira – which has misplaced greater than 65% of its worth since being freely floated again in 2023 – implies that itemizing within the native foreign money provides rise to trade charge dangers.
The report recommends strengthening native capital sources to scale back greenback dependence and publicity to trade charge dangers.
The TLP report notes that “early-stage enterprise buyers deploying {dollars} anticipate greenback denominator exists to keep away from devaluation dangers. When 76.5% of Nigeria-funded startups maintain greenback capital, trade charge instability makes itemizing an train in overseas trade danger administration.”
The comparatively restricted liquidity of the NGX – which has a market capitalisation of round $62bn in comparison with the $28.3 trillion market capitalisation of the New York Inventory Trade (NYSE) – can be a priority for founders.
“The NGX might additionally discover twin or cross-listing partnerships with exchanges like NASDAQ, AIM, and JSE to draw overseas liquidity whereas sustaining an area presence,” the report states.
26% of founders instructed TLP that market frictions equivalent to compliance prices and potential undervaluations have been a key concern, with an additional 16% explicitly highlighting the trade’s liquidity as a deterrent issue.
