Mr Ina Alogwu, Group Director, Digital Transformation, Asset & Resource Management Holding Company (ARM HoldCo) says Foreign Exchange (FX) rate is affecting startups’ from getting investment for their business.
Alogwu said this in Lagos, during “The Catalyst”, a startup programme, with the theme: ”Adapting Fintech Business Models to Economic Climes: Flexibility, Agility and Customer-Centricity”, hosted by Hydrogen and Cocreation Hub (CcHub).
He said that due to the depreciation of the naira against the dollar, Nigerian startup businesses had become unattractive for investors to fund.
According to him, there is funding winter, that is to say, the source of funding is drying, hence, startups need to be more convincing to attract investment.
”The African factor where over the last two years, the naira has actually been depreciating against the dollar, and even if the Venture Capitals (VCs) offshore invest, they recoup their investments in dollars as well.
”So when the company invests in you and they do a valuation in dollars, when it is time for them to exit, four, five, six years down the line, they are hoping to be able to get a return in dollars.
”Now the problem of naira depreciation affects your valuation as well. Valuation is a scientific methodology of coming up with the value of the company so that an investment can happen.
”Typically, when you are calculating the valuation of the startup operating in Nigeria, where their revenue is in Nigerian Naira, they have to do the equivalent conversion into dollars to see what it amounts to.
”The more the naira devalued against the dollar, they lower the valuation of the company, which will deter the investor from funding such startup,” he said.
The digital transformation expert said that one way that a startup could get investment/funding was to expand their operations beyond Nigeria, because that then changes the dynamics around how that company is valued.
He urged startups to have Advisory Board, that would be able to direct them on way to take.
Also speaking, Mr Emeka Awagu, the Chief Technology Officer, Hydrogen, urged startups to partner with bigger firm, so as to learn better and be sustainable in future.
Awagu also urged them to be mindful of the way they spend, when they get funding, as frivolous spending would affect the running of the company.
He called on the startups to research and know what their target markets wanted, as that would help to create tailored-made product for them.
”Your value preposition should be unique, solving compelling problems, for you to be able to succeed and get investors,” Awagu said.
