November 20, 2017

The IPO Debate: Why aren’t Nigerian tech companies going public home or abroad?

Rufai OseniRufai OseniOct 6, 20177min

Editor’s Note: This article is a spin-off from a debate the TechCity editorial team had in our virtual newsroom. Hours of arguing for or against, the auspiciousness or ludicrousness of tech company/startup IPOs led to this first article; so gear up for more depending on how the debate goes now that it’s public. Also check out a brilliant piece by Chukwuemeka Fred Agbata Jnr. months ago on this same topic in The Punch Newspaper.

What does IPO Mean?

An initial public offering (IPO) is the first time that the stock of a private company is offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded.

IPOs have always made a grand entry into the financial sector and it has been a bond that glues potentials together for all the players in a company. It should be said that a lot of companies have benefited from an IPO in different aspects. Formerly, the nomenclature of companies that do IPOs have been a reflection of the buzz in various economies from manufacturing to media to tech and expectedly, tech would be our focal point.

A Timeline of successful, failed and potential Tech company IPOs

The peculiarities of the Tech space have not been fully understood, as we have had just a handful of IPOs ranging from Google in 2004 to Rakuten coming in around that time and in 2012, Mark Zuckerberg decided to incorporate his wedding ceremony to Priscilla with Facebook’s IPO announcement but till date, nothing beats the headline grabbing 2014 IPO of Alibaba which created a cataclysmic revolution.

IPO Record
Image Credit:

Snapchat recently almost had that appeal until it was quashed at the 2nd week of trading.

Roku the TV stream company is currently getting a lot of buzz, maybe due to Hulu (another streaming site)’s success at the Emmy Awards. Amazon, the e-commerce giant has been making giant strides with their share prize surging recently. So much to make its founder Jeff Bezos the richest man in the world before its pantomime slide again. These are tech companies or startups that have scaled to the level of going public or have at some point, considered it.

Read: 5 Early Signs of a Failing Startup

The bone of contention; why aren’t Nigerian tech companies making IPOs?

There are many factors that come to mind in the case of Nigeria, with a vibrant stock exchange founded in 1960 and a major market capitalization of 8.5 trillion; one would expect that with all of these potentials, technology companies would tread the IPO path but it so happens that majority just walk past the idea. This is not to say there aren’t tech companies in Nigeria that have made IPOs. Tech companies like etranzact were listed on the Nigerian Stock Exchange (NSE) as far back as 2009. Computer warehouse group (CWG) also was listed in 2014, but looking at the “new wave” of startups that solve millenial problems and are in fact run by twenty and thirty-something year old Nigerians, just like their Silicon Valley counterparts, one would expect or at least envision tech success stories like Paga, Konga, Flutterwave and the likes to come to the party but till date nothing suffices.

In my pondering, I attributed the inaction to factors like Venture capitals.

Most of the tech companies in Nigeria are venture capital funded and the structure of the funding is rather convulated; much like tubules in a man’s kidney.

When you try to unravel these equity deals, it is akin to modern day slavery and most of these companies have signed off their existence. An investment banker once told me that deals given to Nigerian startups are like mousetraps and this evidently stifles the potential of these companies.

Another factor is the Delaware effect. This is a new trend that is at the front burner of tech (startup) growth in Nigeria. Almost all the big boys are Delaware companies with an outpost in Nigeria. Tech company founders register their businesses in the USA and as such cannot categorically say their companies are Nigerian. This is a shocking trend that crumbles the system to its very foundations.

There is a lot of unexplained flux in the system that causes a lot of friction, and way too deafening silence at the possibility or aspiration of new generation Nigerian tech companies to be listed on the Stock market. At this juncture I encourage us to open the conversation.

Rufai Oseni

Rufai Oseni

  • ayooluwa alfonso

    When you said “There are many factors that come to mind in the case of Nigeria, with a vibrant stock exchange founded in 1960 and a major market capitalization of 8.5 trillion” A trillion what ? What was the base currency?

    Another question we are not considering in this article is “Why are companies incorporated as US business entities rather than as full-blooded Nigerian businesses?”. My guess is that these companies are inclined to indulge in this `trend` because the ecosystem is too complex, business is already hard, why make it harder for yourself.

    Until CSC reduces their claws on these new type of businesses, things might not change much.

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