Why Nigeria’s startup scene is developing at speed

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The Nigerian startup space is developing at speed, and stands a good chance of being the continent’s leader in the next few years when it comes to the amount of funding raised and the quality of solutions being developed.

According to the annual African Tech Startups Funding Report produced by Disrupt Africa, Nigerian startups are the second most backed on the continent, while a recent survey by VC4Africa placed the country first.

It is certainly getting easier to raise funding as a Nigerian startup as opposed to, say, five years ago. Just ask Seni Sulyman, country director at African coding accelerator Andela. Last year, the company raised a US$24 million Series B funding round led by the Chan Zuckerberg Initiative.

“Investor interest is absolutely increasing – the data shows that capital deployed is increasing every year. There is also an increasing number of top-tier international investors expressing an interest in understanding the Nigerian tech market,” he said.

“In the past year alone, we’ve hosted investors from 500 Startups, Y Combinator, and other major early-stage funds that want to get involved in the Lagos tech ecosystem.”

This is a view shared by Victor Sada, a risk and investment analyst at Venture Garden Group, one of the primary firms investing in Nigerian tech startup.

“The rise of foreign investors has also sprung up an interest in the local investment space in technology,” he said.

Attracting international investors

There are several reasons for this, according to Sada.

“Nigeria has over 180 million people, making it the most populous country in Africa. It also has the highest number of internet users in Africa,” he said.

“There are a lot of problems in Nigeria. Basic amenities are still a big issue, people complain about the banking sector- this is why there has been a huge rise in the number of fintech startups in Nigeria. So, there is huge potential for technology to solve real life issues which would, in turn, bring value.”

Meanwhile, Nigeria’s expanding consumer spending is increasingly going digital. In 2016, US$420 million was spent on online transactions, and over US$1 billion dollars spent on paying bills online.

Jason Njoku, who founded and runs on-demand Nollywood platform Iroko, says when he was first looking for funding five years ago there was nothing doing in Nigeria, but that is now not the case. However, he said startups still mostly have to look abroad for larger ticket sizes.

“Anyone looking for a significant seed investment, or Series A and above, automatically looks to Western investors, because Nigeria does not currently have any big ticket investors for the technology scene,” he said.

“If you want to scale, in reality, you need to jump on a plane and source your funds from elsewhere, because the Nigerian tech scene has yet to attract significant, homegrown investors who are willing to write US$1 million plus cheques.”  

Adetayo Bamiduro, co-founder and chief executive officer (CEO) of e-courier startup Metro Africa Express (MAX), which is another Nigerian tech startup to have successfully secured funding, agrees serious challenges remain when it comes to fundraising.

“It’s hard to raise money anywhere in the world. It’s tougher for startups in Nigeria because VC is still a new concept. There is not enough risk capital to accelerate great ideas, so founders with big dreams still have to look outside to raise capital,” he said.

Building from the bottom

It is not only securing funding that poses a challenge to aspiring tech entrepreneurs. Simply getting a business off the ground in the first place can be difficult, with Nigeria one of the poorest performers globally in the World Bank’s Ease of Doing Business rankings.

Bamiduro said though it is tough to launch a business anywhere in the world, in Lagos it can be five times harder.

“The key challenges are around infrastructure, law and order, and access to finance and talent.

Because of failure of institutions and government departments, you have to take care of a lot of things that are readily available in other cities in the world.”

Njoku agrees, saying Nigeria has a staggering amount of bureaucracy.

“That being said, I believe there’s more information in the public sphere available these days, to those starting out,” he said.

Indeed, help is at hand. Lagos in particular has a growing startup support ecosystem, mostly in the Yaba area. The Yaba technology cluster has developed relatively organically in the last few years, around key organisations such as the Co-Creation Hub (CcHub).

So important is the cluster considered to be that stakeholders are currently in the process of developing an “Open Yaba Manifesto” they hope will promote the future development of the cluster. Deliberations of each pillar are being led by the likes of Mark Essien, Olufunbi Falayi and Gbenga Sesan, and a website will be built to house the completed manifesto.

An “Open Yaba” and other success stories

The Yaba tech cluster is just one – major – example of how the local scene is developing to provide more assistance to startup. Njoku has witnessed the support system grow in recent years.

“There are far more opportunities to access seed funding and support today. The accelerators and hubs are providing a home to entrepreneurs and developers who need some space and time to think, share and test ideas,” he said.

Sada says the good thing about Nigeria’s tech hubs is that 80 per cent of them offer acceleration and incubation services, also organising in-house hackathons to discover new products.

“As for mentorship, I would recommend there be more focus on guidance and coaching from industry experts through meetups and in-person coaching,” he said.

However, the above-mentioned Falayi, who runs the Lagos-based Passion Incubator, says there are still too few of these support organisations compared to the supply of entrepreneurs.

“This is majorly due to the ability of these organisations to be self-sustaining in the face of huge infrastructure issues and lack of government support,” he said.

More backing is necessary, then. The government has run some startup-related programmes, such as the now-defunct iDEA initiative and President Buhari’s Aso Villa Demo Day, while it has also committed to training over 10,000 young people in software development through its N-Power programme.

“The federal government has also developed a series of hackathons to solve problems at the intersection of government processes and regulations, and the ease of doing business in Nigeria. Startups with the best ideas get seed capital to begin solution deployment,” Sada said.

However, such support has so far only gone so far.

“The state government has launched a few good initiatives to provide access to low interest-rate loans. Beyond this, there’s not much. You won’t find anything close to what the governments of Chile, Rwanda and the UK are doing to accelerate tech startups,” said Sada.

Njoku has noted a “more of a public-facing push” by the government to involve itself in the local tech community – such as announcements of funds and grants.

“However, from what I can see, the vast majority of activity, the catalyst behind Nigeria’s tech scene, comes from individuals rather than the government,” he said.

Falayi agrees there is much more to be done.

“Policies are needed in place that will make it easier for startups and supporters to operate and excel,” he said.

The Yaba community is taking the lead in establishing a roadmap for the future development of the local tech ecosystem. It is a positive first step, and Nigeria is already growing, but it remains to be seen if there will ever be enough hands on deck for the scene to truly thrive.

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent’s most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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