Beyond the global financial crisis: challenges facing venture capitalists operating in an emerging economy such as Nigeria

Objectives: The study investigates the challenges faced by venture capitalists (VCs) when operating in an emerging market, as well as problems in dealing with the entrepreneurs themselves. This is to gain a deeper understanding of the environmental and governmental policy factors that are hindering the growth of the industry in Nigeria.
Prior Work: In light of the recent global financial downturn where people are being made redundant, many could see it as an opportunity to start up their own business. However, the smooth operation of the finance escalator has proved difficult to achieve under recent financial conditions (North et al. 2013; Gill 2010; Mason et al 2010; NESTA 2009. Moreover, in an emerging economy, small business owners are more likely to secure funding for their new business venture from traditional sources rather than venture capital (VC) since they do not know much about it (Gupta and Sapienza, 2001). Jiang et al. (2014) argue that although the role of VCs is well documented in western developed economies, limited attention has been paid to it by SMEs in emerging markets.
Approach: The data was collected using qualitative method involving interviews with 4 VCs who operate in Nigeria, 5 entrepreneurs who were not able to secure venture capital (VC) funding for their ventures and a government minister and a member of staff as key informants.
Results: The results show that VCs who operate in Nigeria face challenges which are unique to an emerging economy. The findings suggest that people do not fully understand what VCs look for in a business, the benefits they bring to a business, how they work and the time it takes to get things done from a bureaucratic and legal perspective.
Implications: The implication of the study is that the Nigerian government should take steps to improve the country’s VC industry by setting up of a VC fund for technology-based starts-ups. The government should also meet with the heads of the major financial houses in Nigeria in an effort to create a positive public relation campaign to highlight the benefits VCs bring to businesses. This will help significantly towards the development of the industry in Nigeria.
Value: This study makes contribution to the growing body of literature on venture capital and the effect of global financial crisis. A better understanding of the decision making process of deal structuring will help VCs to make better decisions regarding investments and stages of funding. Understanding how VCs decide when and where to invest, might benefit entrepreneurs and SMEs with respect to attracting VC as well as increasing the likelihood of receiving higher levels of funding, because a higher level of financing gives them a bigger level of flexibility (Payne et al. (2009).

Permission granted on 13/04/17, by the ISBE (http://isbe.org.uk/) to make the full text of the conference paper available in the Middlesex University Research Repository.