Why Nigeria tech startups may wait longer to attract Andela-like funding
The Nigerian tech ecosystem is currently brimming with hope and high expectations. Andela’s recent record-breaking Series C $40 million funding is every reason to hope that foreign investors are very interested in the Nigerian ecosystem.
The software developers coach got new financing from CRE Venture Capital, a pan-African venture firm; DBL Partners based in New York; Amplo; and Salesforce Ventures also based in the United States of America.
According to Tech Crunch, the latest round of finance makes Andela the most highly funded African company not based in Africa.
You read right; Andela is not a Nigerian company.
Although the company’s services are mainly Africa-centric, Andela is a US registered company with campuses in Lagos, Nigeria; Nairobi, Kenya; and Kampala, Uganda.
It was founded in 2014 by four entrepreneurs namely Jeremy Johnson, Iyinoluwa Aboyeji current founder of Flutterwave, Ian Carnevale and Christine Sass. Andela plans to train 100,000 genius-level young people across the African continent over the next 10 years. Previous investors include Chan Zuckerberg Initiative, GV, and Spark Capital.
Why it is not in doubt that investors in Nigeria and outside the country are interested in the tech start-ups, what is in doubt are whether a non-Nigerian company providing services in Nigeria have the same equal opportunity with a core Nigerian tech start also operating within the country.
Much has been said about how Andela’s achievement is going to boost the image of tech companies in Nigeria with regards to foreign investors and even push for more local investments towards them. There were also discussions around a booming ecosystem when Flutterwave raised over $10 million in a Series A round of funding led by Greycroft Partners and Green Visor.
It should also be acknowledged that a few local tech companies have attracted investments that may be considered significant. For instance, Appzone, a Nigerian startup provider of software solutions to financial institutions in the country secured $3 million a few years ago. Also, Netplus Advisory, an e-commerce and e-payments operations company registered in Nigeria got a $5 million funding from a Ghanaian private-equity firm, Synergy Capital.
But so far, only a few Nigerian tech start-ups has marched the funding prowess of Andela, Flutterwave or Paystack.
Like Andela, Flutterwave and Paystack are US registered companies with offices in the States.
Paystack’s first major funding ($120,000) came from San Francisco based accelerator, Y Combinator in 2015. A year later, it raised $1.3 million from Comcast Ventures and 14 other investors. Paystack has also secured undisclosed non-equity assistance from Ventures Platform. The fintech company presently serves as a go-to for start-ups desiring to be accepted into Y Combinator, the world’s number one tech start-ups accelerator and incubator.
Nevertheless, funding for tech start-ups in Nigeria remains a major headache for reasons.
First, the largely unstructured and unpredictable business environment in the country makes it very unattractive for both local and foreign investors to put their money in small businesses.
In a piece titled ‘How Andela was founded’ Iyinoluwa Aboyeji, co-founder of the company noted how his first venture (Fora) before Andela had to shut down following a “dry spell chasing elusive investors in Nigeria.” He also mentioned inability to raise funds locally because “I did not have the political networks to break through regulatory barriers we faced.”
Small businesses in Nigeria face a herculean task breaking through regulatory policies, starting from company incorporation to products registration and certifications. There is also the widespread incidence of copyrights and patent stealing. It is just recently that the Buhari administration is starting to make serious effort with the National Action Plan on Enabling Business Environment in Nigeria.
Poor corporate governance culture is another challenge. Beyond the hype of big ideas and innovations, most tech start-ups in Nigeria take record and bookkeeping lightly.
A foreign investor will rarely put his money in a business that cannot show record of how it spends its money, according to experts.
Another challenge is Nigerian investors are yet to understand what it takes to build big tech companies like Facebook or Snap. Most local investors want to invest in businesses that guarantees return within a short time. However, the software that becomes the basis for income generation for tech firms could take nearly two to three years to complete.
Ridesharing platform, GoMyWay’s initial plan was to take about two years to amass members before it starts generating revenue but the Nigerian investors became impatient. As a result the company is shutting down by the end of October.
Why are non-Nigerian tech companies like Andela attracting more funding?
It is simple. Foreign investors put their money in what they are familiar with. Flutterwave CEO, Aboyeji has spent most of his entrepreneurial life mingling with Silicon Valley tech businesses. He is a known face; he has a track record that is verifiable from his past businesses. To crown it all, Flutterwave’s sit of operation is in San Francisco, the nerve centre of Silicon Valley.
Andela, on the other hand, has three US co-founders. The company is headquartered in the US and like Flutterwave its operation spreads across beyond to other African countries.
Paystack’s office in the US is located also at the heart of Silicon Valley at San Francisco; has the very important Y Combinator seal of approval and its operations goes beyond Nigeria.
Leadspace CEO, Olufunbi Falayi, puts it this way “When an entrepreneur has an idea that is still an idea, there is absolutely no way he is raising money abroad. Except that idea is a Flutterwave; where it is really needed, the infrastructure exists, the partnership exists, you are a known entrepreneur, you have traction, you have personal visibility and people know you. All of these things will come together for you to be able to raise money in Silicon Valley without even a product.”
Nonetheless, some needles have passed through the haystack. For example, Fintech company Paga, a 100 percent Nigerian company is a good example of how to run a successful tech startup. So far Paga has secured $13 million in total funding round (currently Series B. Source: Crunchbase). Some of the company’s success may also be linked to the founder, Tayo Oviosu’s deep ties to Los Angeles, California the state where Silicon Valley is located. But it is interesting to note that one of its early finance came from a Nigerian-based company Alitheia Capital.
Collins Onuegbu, chief executive officer of Signal Alliance and a director at Lagos Angels Network told BusinessDay that it is not that local investors are unwilling to invest but trust often is the big elephant in the room. Many entrepreneurs come to local investors with big expectations but little to offer.
Falayi says that local start-ups with a global view stand a better chance at attracting big investments. Investors want solutions that solve big problems in not just their community but beyond. They want solutions that are easily application in different societies with similar problems. For instance, to date, Andela has hired 500 developers. These developers are put to work on projects for companies such as Mastercard Labs, Viacom, GitHub and Gusto.
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