In light of ongoing currency volatility in Nigeria and the broader West African region, dollar-based financing is increasingly being deemed unsustainable for startups.
This topic dominated discussions at the West African segment of the 21st Annual Africa Venture Capital Association Conference (AVCA) and VC Summit. During these sessions, investors emphasized that the returns on dollar-denominated investments are no longer appealing in today’s unstable market environment.
The Need for Naira-Based Investments
Gbenga Hassan, managing partner at Argentil Capital Management, argued that investments in naira are essential to maximize returns. Since most local startups generate revenue in naira, Hassan pointed out that funds raised in naira are better positioned to generate substantial returns. He further explained that a naira-based fund could see up to 10 times greater returns within a few years compared to a dollar-denominated fund, which would be hindered by the depreciation of the naira.
“There is a clear need for more local investors who understand the market and the value of investing in local currency,” he emphasized.
Currency Volatility and Long-Term Protection
Yewande Adewusi, chief operating officer and operating principal at Alitheia Capital, also addressed the issue of currency volatility, noting that such fluctuations typically occur every six to eight years. She argued that raising capital in naira can offer better protection for both startups and investors, providing a more stable environment for long-term returns.
Both experts highlighted the importance of local capital in fostering a more resilient and profitable startup ecosystem in the region, suggesting that the era of dollar-based financing for West African startups may be coming to an end.
