Where funding is needed is irrelevant, the VC’s interest leads
Without funding, no matter the idea, the business is dead. Funding is the lifeblood of any business. Fintech is inclusive. However, despite the increase in investments, research indicated that access to late-stage and growth capital is a Herculean task for Fintech in Nigeria.
FintechNGR and Ernst & Young’s report showed that Fintech in Nigeria rely on external funding. For instance, Fintech firms in Nigeria have sourced investment from 20 countries across Africa, America, Asia, and Europe. The 57% of the Fintech firms attracted external funding. The other 52% got funds locally.
On the one hand
The whitepaper from McKinsey & Company in partnership with the World Economic Forum’s Future of Venture Capital initiative on The Future of Global Venture Capital initiative has identified an opportunity to strengthen the global venture capital ecosystem.
It captured the importance of the VC as the driver of Fintech development. It pointed out that obtaining funding from the VC is a challenge for many Fintech companies across regions. This is why. Where funding is needed is irrelevant to the VC. The interest of the VC leads. Do know the result? Innovative suffers. Businesses that require funding do not get it. What matters is the VC’s interest, not innovation. It is akin to putting your money where your interest lies.
On the other hand
Both local and foreign VCs play a crucial role in nurturing Fintech ecosystems. They help Fintech firms to scale. For instance, local investors bring an intimate knowledge of the domestic market. This allows the local VC to support homegrown Fintech start-ups that address local needs and challenges. Foreign investors usually contribute by providing a global perspective, extensive networks, and access to larger pools of capital. The whitepaper believed this collaboration is essential.
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In the long term
The US and Canada have the highest number of local Fintech funding. Research showed that the figure was above 85% as of 2023. Europe had 53.2%. Local investors made 36% of the investments in Asia Pacific (APAC), LAC, MENA, and SSA, while 64% came from foreign investors. The report identified five strategic pathways to close funding gaps and foster a robust Fintech ecosystem. Like a river, the funding saga runs through every region.
The Fintech industry’s expansion in the decade has aided innovation, inclusion, and growth in the financial services sector and the economy. But the funding challenge has been unabated. While VC plays a crucial role in financing waves of technological innovation, Fintech has ranked as one of the top sectors attracting a 12% share of all VC funding on average.
The global VC funding for Fintech firms has grown from $18 billion in 2015 to $92 billion in 2021. The low-interest rate environment and the pandemic-induced digitalisation were responsible for this growth. This growth, research showed reversed as geopolitical instability and rising interest rates dampened valuations. This led to a decline to $30 billion in 2023 – marking a 67% decrease from the 2021 peak.
Latin America and the Caribbean (LAC) have seen the highest compound annual funding growth at an annual average of 37% between 2015 and 2023, despite an 81% decrease since the 2021 peak. The Middle East and North Africa (MENA) had the second-highest growth rate for fintech VC funding between 2015 and 2023, with an annual average growth of 33%. As the global economy recovers and investor confidence returns, the Fintech industry will attract renewed interest and fuel the next wave of innovation.
In the short term
The balance between local and foreign investment varies. As a VC, feather your nest next.
*Olaegbe ([email protected])
