An exploratory research employing systematic evolutionary approach (Avnimelech and Teubal 2002) to study Venture Capital and New Technology Based Firms in Nigeria. It offers a history of economic agents, actors activities and linkages in the creation of technology based firms in Nigeria, with due consideration to their economic outcomes and social impacts (Gault 2010). Though Nigeria has no defined VC policy, the paper assumes so with Supply side policies such as the Venture Capital (Incentives) Decree No .89 1993 and 2001 Small and Medium-Scale Industries Equity Investment Scheme (SMEIS). Macroeconomic factors (such as supply side and demand side policies) would support the emergence of NTBFs as seen from the study. In Nigeria, tremendous efforts have been made to resolve small business finance, with no particular attention directed at technology-based firms. There is an increasing need for demand side policy changes (i.e. initiatives to improve both financial and managerial capabilities of technology entrepreneurs in Nigeria). Infrastructure supports for Nigerian NTBFs are misplaced with continuous reliance on technology transfer above creative creation within the economy. With this study, knowledge has been extended about the policy environment that foster Venture Capital and NTBFs in Nigeria.

1. New Technology Based Firms and Venture
Capital policy in Nigeria
*.
Adebola Daramola*
National Centre for Technology Management,
Obafemi Awolowo University, Ile-Ife
(NACETEM)
This paper was prepared for presentation at the Summer School 2011 of the Research Network on Innovation –SITE Clersé , Dunkerque, France with theme:
Entrepreneurship, Innovation and Sustainable Development. August 31, 2011 – September 3, 2011

2. Introduction
• The presence of institution such as Venture capital (VC) serves as a
strong mechanism for innovation, by providing early stage equity
and strategic support in form of vested interest in the success of the
technology based firm ( Oyelaran-Oyeyinka and Sampath, 2007;
Debbie Ariyo 2000).
• The development of high growth technology based firms (TBFs) in
Silicon Valley, Israel, Bangalore and UK is attributed to Venture
Capital. They helped create new industry and sectors, which in turn
provides job creating opportunities for these nations. Research
works in universities have been commercialized through the
backing of Venture Capital fund. Novel ideas (like Facebook) from
people with little or no business pedigree have known commercial
success all with the support enjoyed from VCs.

3. Background
• With a colonial history traced to the British, we can describe
the emergence of risk finance and venture capital policy in
Nigeria to development financial institutions (DFIs).
• The design of private equity and venture capital firms takes a
clue from the DFIs, these institutions are designed to provide
medium and long term financing, with provision of technical
and managerial services, in addition to monitoring effectively
the progress of the investee firms.

4. Literature on Venture Capital Policy and Technology –
Based firms.
• Earlier research ( Donna Situ; Nef; Lefton ; Ansari & Uddin Mohd)on the
role of VC firms and NTBFs; VC firms and Innovation ( Rahman, Manan,
Azrai & Sanjivee (2008); Bowonder & Mani( 2002);)in different countries
as a case, we have come to a better understanding of the public policies
that foster the creation of new jobs, service activities and
commercialization of research findings . The effect of this development
has led to increasing entrepreneurship and innovation in countries around
the world.
• Some people have written about the Nigerian Venture Capital Industry
(Isiadinso(2002); Ariyo(2000); Agbana(2010); Dagogo & Ollor (2009), their
major coverage of the subject have been any of an analysis of the market
and its role in support of SMEs and business environment. We have seen
little or no interest in its role in cultivating NTBFs, which is of interest to us
in this paper

5. Research approach to NTBFs and
Venture Capital Policy
• Rosiello, Teubal and Avnimelech (2008) posit that research on venture
capital and New Technology Based Firms have followed two route ; firstly:
finance literature where venture capital is seen as an arm of the financial
system only , restrictive in approach and confines the assessment of
NTBFs and VC Policy to the definition of VC as a pool of blind funds to
invest in new starts up and later stage companies, the second method is
the systematic evolutionary( SE) takes into cognizance the relevance of
interlinked policies in achieving new start up development, a combination
of all economic and Science, Technology and Innovation(STI) policy.
• The use of systematic evolutionary (SE) approach (Avnimelech and Teubal
,2002) to understanding VC Policy is rooted in a broader history of
economic agents and actors activities and linkages in the creation of new
startups, with due consideration to their economic outcomes and social
impacts ( Gault 2010)

6. Policy Environment for NTBFs and
Venture Capital
• With the knowledge of Innovation system approach,
we are aware that policies matter. Policies play a role
in setting the parameters within which actors make
decision about learning, investment and innovation
(Adebowale 2010). Government drives economic
development through policy decisions and
incentives. This takes the form of economic,
institutional and regulatory frameworks through
which market can channel resources to new
innovative enterprises.

7. External factors
These are macroeconomic and other factors affecting both the supply and the demand for
venture capital.
Nature of Supply side policies
Types
Description
DIRECT SUPPLY OF CAPITAL
Government equity investment
To make direct investments in venture
capital firms or Technology –Based
firms(TBFs)
To make low-interest, long-term and/or
non-refundable loans to venture
capital firms or TBFs
To provide tax incentives, particularly
tax credits, to those investing in small
firms or venture capital funds
To guarantee a proportion of bank
loans to qualified Technology-Based
firms
To guarantee a proportion of the
losses of high-risk venture capital
investment
To allow institutions such as pension
funds or insurance
companies to invest in venture capital
Government loans
FINANCIAL INCENTIVES:
Tax incentives
Loan guarantees
Equity guarantees
Investor regulations:

8. Demand side
policies
Consideration
Cultural
Environment
Rationale/Description
Personal
entrepreneurial
characteristics (PEC).
Demographics
This refers to the underpinning characteristics of entrepreneurs in the economy, the
need for achievement, personal locus of control and risk taking propensity.
Education Structure
Infrastructure &
Support
Major factor of
importance
Entrenching changes in education that encourages training in entrepreneurship and
business. Encouraging education in Science, Technology, Engineering and
Mathematics as a building block to NTBFs creation.
A designated area to create and nurture SMEs with physical infrastructure and various
services such as business planning, financial advisory, management training,
advertising, secretarial , security, intellectual property protection and post incubation
support.
An environment designated by government , universities or research institutions with
incentives such as access to research facilities, technology transfer and spin-off
offered to companies to relocate to catalyses the process of growing more TBFs ,
provide entrepreneurs with access to expertise, networks and business support to
make their venture successful. They have strong R&D components in their
organizational structure.
A special type of business incubator that focuses on new ventures that employ
technologies, it serves as a market for commercialization and diffusion of technologies.
Business Incubator
( government –funded
or private-public
partnerships)
Technology Parks
Technology Incubators
Clusters
Export Processing
Zones(EPZs)
Support Agencies
Give attention to age, gender and educational background and former work experience
as an impact on entrepreneurial intention and endeavor such as establishing TBFs
This could be based on factors such as natural resources or geographical advantages
.It is a critical mass of firms allowing economies of scale and scope, a strong science
and technology base, and a culture conducive to innovation and entrepreneurship.
This is a mechanism employed by economies to acquire and diffuse technology in the
local economy by permitting participating firms to acquire their imported inputs free as
long as they export 100% of their products. The focus is attracting FDI and providing
access to infrastructure and tax incentives leading to increase productivity in host
country.
These refers to government ministries, agencies(MDAs) and department established to
support the growth of TBFs.

9. Evolution of Venture Capital in Nigeria
Pre 1997
Key Features of the period
1997-2002
2003-Date

Preceded by the emergence of development
financial institutions (DFIs), commercials banks,
Major government investments in heavy industry
(steel, aluminum, fertilizer etc)— poorly planned
and executed
Several development plans conceived to push the
country into the frontier economy failed
Presence of White Elephant project
Inefficiency of management of DFIs investee
companies




Development financial institutions (DFIs) and
negligible number of VCs- prominent were the
National Risk Fund Plc and Venture & Trust
Company
investments in manufacturing, agro-allied, tourism
and hotel etc


High levels of effective protection including outright
bans on imports for domestic manufactures
Poorly designed product and location specific
incentives, including tax and import duty rebates,
and development of export processing zones.
Several of these schemes were subject to gross
abuse because of weak governance
the First National Policy on Science &Technology
was developed
National Risk Fund was introduced





VC’s Presence and Funding
Focus


Government’s Role toward VC
development and NTBFs







The exit of military in the governance of
Nigeria
Deregulation
Privatization of Government –owned
Industries
Liberalization of Telecommunication sector







Continual democratic governance
Reforms-banking consolidations and pension
Privatization of Government –owned
Industries
Emergence of adoptable
Technologies/Model for inclusive
penetration of markets- MobileMoney, MHealth
Return of Nigerian diaspora in droves to take
up management and creation of business
More VC players
public investments in heavy industry (steel,
aluminum, fertilizer etc)
privatized companies, Telecommunication
companies; Financial Services, Oil and Gas,
FCMGs,


Facilitated the establishment of Small and
Medium-Scale Industries Equity Investment
Scheme (SMEIS)
Initiated favorable business policies
Review of the first National S&T policy
The Investment and Securities Decree was
passed into law
Establishment of the Investment and
Securities Tribunal for speedy resolution of
disputes arising out of investment deals

Investment friendly policies leading to
enormous interest by foreigners and
confident earned from the locals

Full review of the first National S&T
policy(2003)

Introduction of a Science, Technology &
Innovation policy draft (2011)

Bank consolidation, strengthen the financial
landscape

More VC firms, with increase in deals
VC Industry development with specialty firms
emerging
privatized companies, Telecommunication
companies; Financial Services, Oil and Gas,
Infrastructure, Technology based or
Technology Business model companies,
Power/Energy;Shipping,

10. Venture Capital Firms activities in Nigeria
• With the establishment of Small and Medium-Scale Industries
Equity Investment Scheme (SMEIS) in 2001 and the liberalization of
telecommunication in Nigeria, venture capital activities have
expanded leading to a corresponding increase in the presence of VC
firms in Nigeria or outside with focus on Nigeria (Sub-Saharan Team
often based in London, South Africa or Ghana).
• The use of ICT in Nigeria is growing, with the financial services
sector outside the Oil and Gas Industry, a major consumer of
technology and the agriculture business sector (renewable energy,
seed production) enjoying interest from the VCs.
• The interest to invest in Nigeria over the last ten years by both local
and international venture capital funds is attributable to the stable
macroeconomic indicators fuelled by a continual democratic
governance and entrenchment of rule of law and economic policies.

11. New Technology Based Firms- Definition
• The origin of the term NTBFs is attributed to the Arthur D.
Little Group. They defined it as” an independently owned
business established for not more than 25 years and based on
the exploitation of an invention or technological innovation
which implies substantial technological risks.
• James Allen’s definition as quoted in the Bank of England
report (1996) on “The Financing of Technology-Based Small
Firms”, state that NTBFs is a business whose products or
services depend to a significant extent on the application of
scientific or technological skills or knowledge (whether it be
novel application of advanced technology to provide a totally
new product or service, or an application of existing
technology in an innovative manner).

12. Classification of Technology Based Firms (TBFs)
• In this research, our understanding of what qualify as a technology based
firms (TBFs) employ ISIC Rev.3, also known as the OECD classification of
industry based on technology.
• It is a division of industries into high-technology, medium-high-technology,
medium –low-technology and low-technology groups, it includes a new
division of services classified according to their “knowledge-intensity. This
enables knowledge based services such as Finance, Insurance, business
services, Telecommunication, Education and Health.

13. Nature of New Technology Based Firm
(NTBF) in Nigeria
• NTBFs in Nigeria are enterprises across industries which utilize
technological innovation or exploit an invention; the common driver has
been ICT. They fall within the medium –low-technology; low-technology
and Knowledge Intensity services groups.

14. Industry
Description of Technology or
Invention
Technology Innovation
(tick off)
Education
E-learning, On-line
Registration/Examination
√
Medicine
TeleMedicine, Assisted
√
Exploitation of
Invention
(tick off)
Examples of TBFs in Nigeria
National Open University of Nigeria, JAMB,
√
NAFDAC,
Reproductive Technology,
Telecommunication
GSM, BroadBand Technology, ICT
√
MTN, Etisalat, Aitel, Globacom, V isafone
Financial Services
ATM, Online Banking, e-commerce
√
Commercial Banks, Etransact, Interswitch,
Agriculture
Seed production, mechanization
farming, Animal Production,
√
√
Obasanjo’s Farm, Animal Farm
Oil and Gas
Refinery, Oil Drilling,
√
√
Shell, Oando,
ICT
Computers, Software
√
√
Resourcery, Omatek, Zinox, Chams,
Logistics &Transportation
Online Reservation
√
Arik, Dana, ABC Transport,
Mass Communication
broadcast, electronics and print
media
√
Silverbird, ePunch, FM radion stations
Defense
Intelligence Gathering, Artillery
Manufacturing
√
Government
Election registration
√
INEC, FGN MDAs
Entertainment
Movies, Music, Video
√
Silverbird, StormRecords,
Manufacturing
FCMG, Paints, Wire & Cable
√
√
√
Armed Forces
Promasidor, Ayoola Foods,

15. Nigerian experience of NTBFs and VC
Policy
Policies and programs
VC-directed policy
(tick off)
Financial incentives(Tax )
√
Venture Capital (Incentives) Decree No .89 1993 Act.
√
the Small and Medium Enterprises Equity Investment Scheme (SMEEIS) 2001
VC –related policy
(tick off)
√
Science, Technology & Innovation policy draft (2011)
√
Entrepreneurship Development syllabus introduced into Primary, Secondary,
University (2006)
√
Technology Incubation Centres
√
Clusters( Otigba, Nnewi)
√
Support Agencies( SMEDAN, BOI, NOTAP,
√
Establishment of Intellectual Property and Technology Transfer Offices
√
Stable macroeconomic environment (1999-Date)
√
Export Processing Zones(EPZs
√
Educational and Research Organisations
√
Entrepreneurial characteristics of the diverse tribe in the country
√

16. Research Methodology
• Relied on secondary source material as well as conducted open
(unstructured) questions interviews of selected members of the Venture
Capital Association of Nigeria (VCAN) and executives in technology-based
firms( Vassilev ,2005).
• For the secondary source material, data were collected from several
sources: electronic searches were performed to identify previous research
on the topic: venture capital policy and NTBFs, Venture Capital in Nigeria
and the classification of technology based firms (TBFs).
• Research report of leading consulting firm, Private Equity firm and Africa
Venture Capital Association were scanned for relevant data. Nigerian
based and focused Venture Capital firm website was visited to compile
useful information for the study. Company press announcements and
Industry leader’s presentation were equally scanned.

17. Data Analysis and Presentation of
Results
• At this level of presentation, the research is exploratory
with reliance on secondary source material and
opportunity to gather more data. So far, interviews were
conducted with five (5) members of the Venture Capital
Association of Nigeria (VCAN), with between 9-25 years
work experience in the Nigerian Financial Industry,
particularly Venture Capital firms. They were Senior
Investment Analyst (2), Investment Principal (2) and
Regional CEO/Partner (1). Further face-to-face interviews
scheduled with executives in technology –based firms could
not be held, but the researcher took time to interview
about six (6) executives and professional services
consultant over the phone. Each interview with the total
eleven (11) individuals lasted no less than one hour.

18. Findings
• Insight from the interviews was the need for demand side
policy changes to encourage an upsurge of entrepreneurial
and inventive discovery in the country, with proper
framework such as intellectual property to support the
growth of TBFs. This should take emphasizes on Sciences,
Technology, Engineering and Mathematics (STEM)
education above the Management Sciences education as
we currently have.
• Infrastructure supports to foster NTBFs are misplaced with
continuous reliance on technology transfer above creative
creation within the economy.
• Also government incentives targeted toward TBFs are
minimal or non-existent which invariably affects the level of
VC investments in Nigeria

19. Conclusion
• With this exploratory research, we have extended knowledge about New
Technology Based firm and Venture Capital policy in Nigeria (Andreas
Pfeil,2000) using the Systemic Evolutionary (SE) perspective (Rosiello,
Teubal and Avnimelech ,2008; Avnimelech and Teubal ,2002 ).
• There is room for indepth data gathering and collection across all actors
of the Innovation ecosystem beyond the members of the Venture Capital
Association of Nigeria (VCAN) and some executives in technology-based
firms to assess VC Policy in support of NTBFs creation

20. THANK YOU FOR YOUR ATTENTION!